Nearly every retail company has a special financing plan for their products that is supposed to help the consumer pay for the items they want. These special financing plans seem like a win-win situation for both the buyer and the seller. The buyer gets to buy the things that they want and the seller makes a sale that they may not have made otherwise. But there is often a third winner in this scenario as well – the financing company. These special financing plans often cost more than the buyer thinks and the costs are well hidden so that the buyer does not realize how much they really will be paying. Here are some things that you should know about special financing plans.
Additional Fees
In many cases, special financing plans include additional fees that are hidden in the payment plan so you do not realize how much you are actually paying in fees. Because these special financing plans are essentially loans, the financing company can add loan origination fees and other fees to the amount that the person must pay to completely repay the loan. Before signing up for one of these plans, make sure that you read all of the information available to ensure that you know what fees are being charged and how much you are going to pay for them.
Retroactive Interest
One of the worst surprises to come from special financing plans is when retroactive interest (sometimes called deferred interest) kicks in. Retroactive interest occurs when the buyer fails to pay off the entire amount of the purchase before the promotional period runs out. At the end of the term, the lender can charge interest dating from your date of purchase, often resulting in hundreds of dollars of additional charges that must be paid off to clear the account. If you are able to pay off the entire amount before the end of the term, then you have nothing to worry about, but if you are unable to do this, then the special financing will cost you much more than you thought.
$0 Payment Plans
Another common feature of special financing plans is no payments required during the promotional period. This feature is basically a trap to get you to put off making payments on the purchase until the financing company can charge you interest on it. The feature gives you the impression that you have plenty of time to pay off the amount even if you do not start making payments right away, but as time flies by, your chances of paying off the amount in time get slimmer and slimmer. Finally, time runs out and you get hit with interest charges from the date of making the purchase, significantly increasing the amount that you end up paying for your purchase.