Zero Interest

Reviewed by Sujaini | Updated on Aug 27, 2020

What is Zero Per Cent Interest?

Zero per cent interest refers to a competitive interest rate used to draw buyers. Credit card issuers, and sometimes sellers of big-ticket items, such as home appliances, also deliver at zero per cent interest rates.

Breaking Down Zero Per Cent Interest

In general, zero per cent interest rates are only available for a limited period of time, such as six months to a year, and maybe restricted to customers with good credit scores. Such deals should be treated with caution because interest rates return to the normal credit card and department store debt levels once the promotional period is over.

Credit card issuers and stores that offer zero per cent interest rates are banking on the fact that a substantial proportion of consumers who avail themselves of the offer will be unable to repay the debt within the promotional period.

These customers will, then, face exorbitant interest charges on the outstanding debt, which will boost the competitiveness of such card issuer or store deals.

Implications of Zero Per cent Interest

It is important to consider transaction fees ranging from one to three per cent before you sign up for a zero per cent deal, which can be factored into with a zero per cent bid. In addition, the real financing costs might be concealed in the purchase price. Let's presume you're in the market for a high-end washer and dryer that are available for Rs.12,200, with zero per cent financing. If the same combination of products is offered elsewhere for Rs.11,000, the zero per cent offer actually looks like one with an implicit interest rate of 10 per cent.