The whole truth about interest free loans

Zero interest
Zero interest

Very often it happens you hear on the radio or TV about a special offer that allows you to purchase a good or service loan with zero interest. This type of financing is typical of large electronics chains that are increasingly offering a number of products to zero. What is important to understand is that zero does not mean zero cost. In other words, even if the rate is zero, buy rate still costs more than paying in cash.

In fact, the zero rate financing implies only that we should not pay interest to buy, for example of our new plasma TVs. But interest is not the only cost item for a loan. A voice is important, for example the investigation which is the initial expense we incur to cover the costs that the Bank or Financial enterprise claimed to assess our creditworthiness (ie to see if we will be able to pay the installments of our loan). There may also be many other expenses, such as commissions, charges to debit the account rate, insurance costs and so on. These are all items that although do not manifest themselves in the form of interest but are a burden that the debtor has to bear for his purchase.

Zero interest

Zero interest

To assess the actual cost of the loan one must then refer to the APR. This is a synthetic index that includes interest and all the expenses that must be financed. The legislation requires that it is always mentioned in any proposed financing to consumers. If the loan is interest free, TAN will be precisely zero while the APR assumes a certain value that indicates the total actual cost of the loan. That is to say if you happen to find TAN offers at 0% and APR at 11%, even in the absence of interest charges imposed the purchaser shall have to raise the cost by even 11%!

Interest rates

Interest rates

Therefore, it is important to pay attention to the interest free offers. You should always consider the APR that is also very useful to make comparisons between several loan offers. Interest free offers are often a smokescreen to push customers to purchase certain stocks of products especially in times like the present when consumption is low.

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