In this 10th installment of “Teaching Kids about Credit” we will review:
What does NO PAYMENTS FOR 12 MONTHS actually mean?
“NO PAYMENTS FOR 12 MONTHS” , “NO PAYMENTS FOR 18 MONTHS” is commonly advertised in used car loan Calgary ads, furniture ads, jewellery ads. When a company advertises this deferral program it usually means that all the interest for that specific period is deferred until the time period expires. This type of deferral in only beneficial for those that will actually be diligent enough to pay the complete loan off prior to the time expiring. Quite often the interest on these loans is at a higher rate. The company advertising is calculating odds that the consumer will not pay within that specific time frame. Of course when companies advertise it appears that the there is “no interest for 12 months”. The perception would be that the interest will only calculate after 12 months. This is certainly not the case. Companies will never loan money for free. This is just not reality and companies are in the business of making money, no giving it away.
My suggestion would be to always read the fine print and ask questions prior to signing up for deferred interest plan. Of course its always best to not buy if in the first place if you cant pay cash. I understand this is not reality for a lot of individuals. It might be a smarter option to put it on your lower rate credit card right before the time expires, then wait for 1 of your other credit cards to offer a 1% transfer. This can always buy a person time.
Just my 2 Cents