What Does 12 Months, No Interest, No Payments Really Mean?
You hear it all the time, especially in the furniture industry: "12 Months, No Interest, No Payments". Sometimes, it's called "12 Months, Same As Cash". What exactly is the meaning of this? Most consumers don't exactly know.
It basically means that you have 12 months to pay off for the furniture that you bought without any interest. It does not mean that there are no payments for 12 months and then you begin to pay it off. Basically, during the promotional finance period, 12 months in this example, you have to pay off the entire balance. It doesn't mean equal payments have to be made each month during the 12 months. You can pay however you want during the 12 months. There are no minimum payments required during the promotional period. You can even skip a few months as long as the entire owed balance is paid off during the promotional period. Each month, the financial institution that issued you the credit will send you your monthly billing statement which will show the current balance.
What happens if I go over the 12 months? Glad you asked. During the promotional period, interest accrues. If you pay off the entire balance within the 12 months, you owe absolutely nothing. If you happen to go over the 12 months, all of the accrued interest must be paid no matter how much is owed. In most instances the interest rate is at 23% or higher. Let's say that you financed $3,000 and you paid off $2,900 during the 12 months and thus you owe $100, which was over the 12 months. Now, you don't pay interest only on the $100. You pay the interest for the entire $3,000 that you financed. How else can the banks profit from this?
Financing options such as the one I just described can be very advantageous, though. If you recently purchased a new home and most of your hard earned money went into the down payment, you may be down on cash. If you can make some monthly payments, then financing your furniture can be for you. Just make sure that the entire balance is paid off during the promotional period.
So next time, when you hear 12 Months, No Interest, No Payments, you'll know the exact meaning.
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