Why 0% finance offers don’t always make sense


Recently my house air conditioning system decided to fail, without warning, around the hottest day of the year. Since the system was older, fixing it didn’t make sense for my personal finances. I was pretty much forced to replace it with a new model – at a price of around $ 7,000. I was really, really unhappy.

Fortunately, I had the $ 7,000 available in my savings account to cover this expense. I make a point of saving money for emergencies because as a homeowner I know costly repairs can happen at any time.

I almost didn’t withdraw my savings because the air conditioning company offered me a deal that looked good: finance my new air conditioner at 0% over 24 months. With this offer, I could have accepted a monthly payment of around $ 300, which my incoming paychecks could cover without drawing on my savings. And since this was a 0% financing offer, I told myself that I had nothing to lose.

In the end, I paid for the replacement of my air conditioning system using the money from my savings. Here’s why.

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The capture with 0% funding

You might assume that 0% finance offers sound too good to be true. But for the most part, they are completely legitimate. It’s not uncommon to receive these offers to finance a purchase, whether it’s furniture, a new car, or a home repair.

But before signing up for a 0% finance offer, it pays to ask a key question: is there a discount for paying directly?

Often times, when companies offer 0% financing on an item or service, they factor the cost of the financing into the quote for the job. I was quoted about $ 7,200 to replace my air conditioner at first, but that $ 7,200 assumed I would fund the replacement unit.

When I requested a discount for not financing my air conditioner, the quote fell to about $ 6,900. It is still a lot of money. But since I had money in my savings account, and withdrawing that money wouldn’t deplete my emergency fund, I thought it made more sense to pay for my air conditioner up front and save the $ 300.

It does not mean that you always get a discount if you forgo 0% financing and pay in one lump sum. But in some cases, you will get some savings by paying directly. And that’s why 0% finance offers don’t always make sense.

If you don’t have money in savings to cover a given expense, or if you want to keep more cash (i.e. make sure you have enough cash), then financing offers at 0% is often a good way to go. Say you are looking to buy furniture worth $ 5,000 and can finance it at 0% over two years. If you only have $ 7,000 in your savings account, you should probably take out the Funding Agreement. If you don’t, you will end up with only $ 2,000 in the bank to cover unforeseen expenses.

But if in this example you have $ 25,000 in savings, you might want to pay for your furniture directly if you can get a discount. In that case, you’ll still have $ 20,000 in cash, and if that’s enough to cover at least three full months of living expenses, you don’t have to worry about withdrawing $ 5,000.

In my case, I’m glad I asked to prepay for my air conditioner in exchange for a small discount. Although I was unhappy with the expense, saving a little bit of money made me feel better about the big picture.

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