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Free Financing Offers

We have all seen the advertisements – “No Interest for 90 Days!” Free financing offers are a common marketing strategy used by many merchants. The lengths of the free financing periods are typically from a few months to a year, but a few are even longer. As with any transaction a consumer enters into, it is important for the consumer to understand how the transaction works. Consumers should be aware that with most free financing offers, the merchant will waive all interest charges but only if the consumer pays the purchase price in full before the end of the no interest period. If even a small portion of the purchase price remains unpaid at the end of the no interest period the consumer will lose all benefits of the free financing offer and the consumer will be charged as if the free financing offer never existed. In other words, if the free financing offer is for 90 days but the consumer pays the balance off on the 95th day, the consumer will not be charged interest for only 5 days, but rather will be charged interest for 95 days! When interest is charged with such financing offers the interest rates used are typically higher than the average rates. When a consumer takes advantage of a free financing offer it is a good idea for the consumer to create a reminder so the consumer does not forget to pay off the balance in full, if possible, before the no interest period expires. Either due to forgetfulness, financial inability or lack of understanding of how the offer works, the majority (one report indicated 78%) of consumers who purchase items on a free financing plan do not pay the balance in full before the end of the no interest period.