The Facts About Interest-Free Holiday Financing
Elyssa Kirkham of GoBankingRates.com shares interest-free financing info for top retailers.
Our friends at GoBankingRates conducted a 2013 holiday spending survey and found that nearly two-thirds of shoppers — 63 percent — haven’t saved a dime for their holiday purchases. Members of this group are probably scrambling right now for ways to finance holiday spending without overdrawing their checking accounts.
Credit cards are the obvious go-to for shoppers who have to make an urgent purchase for which they haven’t saved. But, more and more, retailers are offering their own zero-interest financing options. When compared to the nation’s average credit card rate of 14.96% APR, reported by CreditCards.com, interest-free financing can be a smart, money-saving option.
How Retailers Can Offer Zero-Interest Financing
The principles behind no-interest financing are the same as for limited-time, no-interest credit cards.
The retailer partners with a bank (Apple, for instance, partners with Barclay to offer its financing program), which acts as the creditor. The bank provides the retailer with the money for the purchase, and you then open a line of credit with the bank.
In the financing agreement, you agree to pay the bank back through a payment plan, and accept the bank’s terms and agreements.
This arrangement benefits retailers by allowing them to make a sale to a customer who might not otherwise be able to afford the purchase. The customer walks away with the product and gets to enjoy it while he pays it off, and avoids any interest charges (if he makes payments on time, according to the financing terms).
As for the bank, it has the opportunity to get a borrower on the hook for a higher APR than it would normally charge on a credit card.
The retailer wins no matter what. But whether you or the bank walks away from the sale as the victor? That’s up to you.
Top Retailers Offering Interest-Free Financing
Here’s a look at the zero-interest financing offered by three top retailers.
1. Apple’s No-Interest Financing
-Apple offers no interest for purchases paid in full, issuing a Barclaycard for purchase amounts as follows:
-6 months for purchases less than $499
-12 months for purchases $499 to $1,598
-18 months for purchases $1,599 or more
Customers must purchase Apple products online or at an Apple retail store. The offer is subject to credit approval, and if the purchase is not paid off in full within the promotional period, the borrower will be charged interest at rates between 22.99% and 26.99% APR, based on credit.
2. Amazon.com Store Card
Amazon provides a promotional financing offer through its Amazon.com Store Card, issued by GE Capital Retail Bank, available to both new and existing cardholders. New cardholders will get a $10 Amazon.com gift card just by signing up. This offer is subject to credit approval.
Amazon offers financing for purchase amounts as follow:
-6 months on purchases of $149 or more
-12 months for purchases of $599 or more
-24 months for select Amazon sold items (includes HDTVs, computers, cameras and other items)
To receive zero interest, the purchase must be paid in full within the payment period, and the borrower is required to make minimum monthly payments.
3. Best Buy Credit Card
Cardholders of a Best Buy credit card (financed through HSBC Bank) can get promotional, no-interest financing for the following payment periods:
-6 months for purchases $149 or more
-18 months for purchases $249 or more
-24 months for major appliance and home theater purchases of $399 or more
-36 months on major appliance and home theater purchases of $699 or more
These financing offers exclude a number of items, including car video or audio items, so read the fine print. The longer finance terms can be a great way to be absolutely sure you pay before the no-interest deadline is up — just don’t abuse them to make purchases you can’t afford.
Also, be aware that payments to a Best Buy Credit Card will be applied to purchases with the highest interest rates, so if you make additional purchases besides those you’ve financed, it could mess up the payment plan and leave you on the hook for the interest.
Other retailers offering interest-free financing include JCPenney, Macy’s, Lowes, Home Depot, Kohl’s and Sears. For offer details, visit the retailers’ websites.
Use No-Interest Financing Cautiously
The key to taking advantage of zero-interest financing is to make payments regularly and pay the item off in full within the time listed in the agreement. Missing a payment or not paying off the purchase in full by the deadline could result in extra fees, and you’ll likely get charged full interest retroactively.
And, because most shoppers tend not to worry about interest rates they don’t plan to pay, banks often get away with charging interest much higher than the average credit card rate — 20 to 25 percent is typical, but rates up to 30 percent are not unheard of, either.
To make sure you don’t end up regretting your interest-free financing, follow these tips:
-Pay on time each month, and always make the minimum monthly payments.
-Pay the purchase off within the promotional period.
-Choose the longest financing period possible for your purchase amount, even if you plan to pay it off sooner. That way you’ll have lower monthly payments and more time to come up with the money and avoid getting hit with your interest.
-Read the fine print. Make sure you understand the terms and conditions before you agree to the financing deal, and review each month’s statement carefully to ensure you are staying on-course to pay the purchase off in time.
Not even zero-interest financing will be able to change whether you can really afford that hot-but-expensive new video game console or HDTV. If you’re not positive you can make the payments according to the outlined schedule, it might be best to skip zero-interest financing. Keep in mind that retailer financing is still paying on credit — even though, in most cases, you’re doing so without a card.
Are you doing interest-free financing for your holiday shopping?
Elyssa Kirkham is a financial expert and editor for GoBankingRates.com.
Photo Credit: Getty