Zero-percent financing offers are great credit building tools and can even turn you a profit if accepted and handled properly. The challenge is finding zero percent financing offers that are worth it as some may come with unwanted fees, restrictions, and so forth.
The most common zero-percent financing offers come in the form of 0% credit cards and more then often in the form of car payment financing.
How many times in a day do you see advertisements for 0% financing on new and used cars vs. 0% offers for credit cards, mortgages, student loans, and bank loans? That right there should be a red flag for which 0% offers to generally avoid which are car financing loans. When purchasing a car you should rarely use the services of the dealer's financing offices because they tend to come with a ton of restrictions, fees, and hidden expenses.
Car loans in general come with deceptive terms most often; you either pay a set monthly payment that includes interest (ensuring you end up overpaying for a product that depreciates quickly) or if you get a 0% offer you may run into a higher down payment, higher fees, or a sky high interest rate when the 0% financing offer ends. Honestly you may be better off putting your new car purchase on a low or no interest credit card or seeking a loan from a reputable bank.
That leaves credit cards as the best way to secure and use 0% financing offers. In times of recessions and financial cutbacks these offers are slightly harder to find, but in general every major credit card issuer offers them in some way. The terms for them will depend on your credit score and history, the credit limit given, and the company itself. Many credit card providers will extend 0% offers from 6-15 months with the average being 12 months. This basically means a person can get approved for an interest free credit card for 6-12 months and as long as that person does not exceed the credit limit or miss any of the minimum payments they can enjoy 0% financing.
To maximize the benefits of 0% financing on credit cards you should plan to pay off the balance in full when the offer expires to avoid interest. You can put money away in high interest checking and savings accounts like ING Direct and make the minimum payment each month as required on your credit card. You'll pay no interest during the 0% offer and earn a few bucks in interest on your money sitting in the bank.
The trick is to be sure you can pay off the balance in full once the offer expires so you can keep all the interest earned on your money in your high interest accounts. This means you can't use the card for purchases you can't afford to pay off by the end of the offer. Yes you can use it to buy that new plasma TV or that vacation to Europe but only if you know by offer's end, that you'll have the money to pay it off.
Some people take 0% financing further on credit cards and use it to write balance transfer checks to themselves for about 80% of the available credit; then they store that money in a high interest account while paying minimum payments on the card. At the end of the 0% offer they pay off the card and keep the interest earned as profit.
However fees and restrictions can limit this way of making money so only skilled balance bouncing customers and responsible borrowers should attempt balance transfer check floating.
Fees can ruin 0% offers of credit card. If there is a fee that is too high for balance transfers or transfer checks it can cancel out any profit earned. Plus even if you use a 0% card until the offer expires, if you miss one payment, are late, or can't pay in full at end of the 0% offer you may cancel out any profits and any rewards points earned.
Free money through 0% financing is a game and credit cards are generally the best tools to use. But getting free money, free points/cash back/rewards, and other perks takes a certain level of financial responsibility and planning. Free money is out there for anyone willing to research and be responsible with it but its a game that many don't win at.
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