How 0% Interest Deals Can Wreck Your Finances, Even If You Never Miss A Payment

On the surface, borrowing money at 0% APR looks like a great deal. You get to buy a product or service with someone else’s money, and you don’t have to pay interest for a while. You can find financing options that let you avoid interest payments for 12 months or more, but even though it sounds good, there are a few ways these deals can hurt your finances.

It may seem like there’s only one disadvantage. People who borrow money will get burned by high interest rates if they do not repay the balance on time. However, there is a much more subtle way that 0% interest deals can wreck your finances.

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It’s hard enough to resist spending money due to the regular barrage of advertisements, an innate desire to keep up with everyone else, and how easy it has become to part ways with your hard-earned money. This environment makes it easy to spend money, and 0% APR is just another sweetener.

Borrowing money at 0% APR means there isn’t any immediate downside to making a purchase. Money doesn’t leave your checking account right away, and interest doesn’t immediately accrue on your balance.  This setup may incentivize people to make purchases they would have otherwise ignored.

Unintended spending has unintended consequences. That’s extra money you now have to put toward your credit card bill instead of buying shares of a reliable index fund. Taking enough 0% APR deals can hinder your ability to build up a sufficient nest egg by the time you reach retirement age.

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Interest-free promotions also get people more comfortable with spending other people’s money. While debt can be a productive resource for real estate investors and startup founders, using it for discretionary purchases too often can result in interest payments. Even if you’re not paying interest, you will have to repay the debt with money that you could have invested.

Some people open multiple credit cards to capitalize on short-term 0% APR deals. These cards can be great for getting out of debt sooner if you do a credit card balance transfer. However, these deals can trap people into the habit of borrowing money.