Have you been thinking about buying a new household appliance for some time, but are you concerned about the financing? Electrical specialist stores regularly offer attractive special offers for refrigerators, televisions and the like:
With cheap installment payments, often even free of interest, they seem to make it easier for you to make a purchase decision when you really couldn’t afford to buy a new one. Read here what is actually behind the zero percent financing and the risks involved.
Interest-free can also be expensive
Before you convince yourself of the purchase with an interest-free financing offer, you should check whether there are other costs for financing instead of interest. Ancillary credit costs may be more expensive than the low-interest rate of a bank of your choice.
Typical additional costs are administration fees or residual debt insurance. High default costs can make the installment financing more expensive if you fail to meet your regular payment obligation in a good time.
Compare prices and costs before buying
Before buying a special offer with zero percent financing, you should definitely seek alternative offers and compare the total costs.
An example: You buy an electrical appliance at a price of 5,000 dollars and finance the amount in 24 monthly installments at the following payment terms from your dealer:
- Interest: 0%
- Processing fee: 2%
- Residual debt insurance: 0.6% of the loan amount per month
- Repayment amount: 5,491 dollars
If you opt for the cheap loan from a bank without residual debt insurance, the following costs will apply:
- APR: 3.2%
- Processing fee: 0%
- Repayment amount: 5,369 dollars
So you can see that interest-free financing can be more expensive than a bank loan of your choice with a low-interest rate. If you are not dependent on a retailer’s installment payment offer, you also have a better negotiating position: you may get your electrical device from another provider at a lower price. Ideally, you even offset the loan costs by the cheaper purchase price.
No financing without Credit Checker entry
The retailers also do not sell their products in installments, they only mediate Good Finance and work with a bank of their choice. For you, this means that in addition to the purchase contract, you also conclude a credit contract. Before the loan is granted there is a credit check and after the approval, the credit is entered in your Credit Checker file.
Other unpleasant Credit Checker entries can occur if you are in arrears with payment in installments. In the worst-case scenario, the supposedly cheap installment financing can seriously damage your creditworthiness.
Attention: no right of withdrawal with no interest
As a consumer, you have a statutory right of withdrawal for installment financing of goods with a purchase price of more than 200 dollars.
You can withdraw from your contract up to two weeks after signing the contract. However, this right only applies if interest is charged on the financing. With zero-percent financing, you forfeit your right to withdrawal.