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I have recently purchased a few large items of furniture for my new home and paid a ~25% deposit on these. To pay off the remainder I can pay in full or pay monthly with a 0% APR payment plan.

e.g I spent £2000 on furniture and put a £500 deposit down, leaving a £1500 remaining balance. The options are to pay the remaining balance off immediately or pay in monthly payments - the longest duration of which is £31.25 for 48 months (£31.25 * 48 = £1500). I have enough funds to cover the full balance immediately whilst still leaving enough for an 'emergency fund' in the event of job loss / serious illness etc.

The obvious choice seems to be to extend the payment period for as long as possible and then I could use the surplus cash to overpay on my mortgage for example. I am in full time employment so will get paid another 48 times over the duration and £31.25 a month will seem negligible rather than £1500 today.

Are there any downsides to extending the payments for as long as possible?

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    Presumably you'd get (i.e. save) more from a mortgage overpayment though.
    – GS - Apologise to Monica ♦
    Dec 29, 2020 at 13:22
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    In addition to the "oops, pay all the interest" tricks mentioned in the answers, the obvious downside is that it quite possibly suckered you into making large purchases that you might not have needed, and wouldn't have bought without the 0% interest teaser.
    – jamesqf
    Dec 29, 2020 at 16:52
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    Interest rates have been low long before the pandemic.
    – D Stanley
    Dec 29, 2020 at 16:57
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    I would say the risks are the unpredictable things life might throw your way. Maybe you lose your job, and these payments become a real pain. Maybe you move to a smaller apartment and have to sell the furniture before being done paying for it. Maybe there's a fire in your house that destroys things you're still paying for. Maybe you want to move abroad. Maybe you want to change bank or close this bank account, and it doesn't transfer immediately or creates issues. Anything can happen over 48 months.
    – MicroMachine
    Dec 29, 2020 at 19:40
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    Multiple answers have brought up the downside of retroactive interest after a missed or late payment. Can you confirm or deny whether the financing in question has this (evil) clause?
    – TTT
    Dec 30, 2020 at 5:42

8 Answers 8

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I think the main question here is an administrative one: do you want the hassle of having to deal with the payments for 4 years?

Often these contracts have terms that mean that if you miss a single payment, you can get hit with quite big costs, such as paying a higher rate of interest on all the payments. So it's worth checking the fine print.

Set against that if your mortgage is at say 2%, then the overpayments would save you approximately £60 in interest over the 4 years (average amount being borrowed over the period = 1/2 £1500 = £750, x 4 x 2% = £60).

If all the payments will be taken by direct debit then probably the effort/risk is fairly low and it's probably worth it. If you have to make a payment manually each month then probably not.

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    Indeed. I am anecdotally aware of one case where payments were collected by Direct Debit, EXCEPT THE FINAL PAYMENT. Missing a payment caused an extortionate rate of interest to become due on all of the money. This was all in the small print, but 47 months later the vast majority of customers don't remember that they have to pay that one single payment manually.
    – Vicky
    Dec 29, 2020 at 12:20
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    (My anecdotal awareness comes from being in a large well-known electrical appliance store and overhearing a customer having a heated argument with the manager about this having happened to them).
    – Vicky
    Dec 29, 2020 at 12:21
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    @Vicky Wow that last payment thing is low. Even lower is the retro-active application of interest on all previous payments. How is that even legal?
    – DKNguyen
    Dec 29, 2020 at 21:23
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    @JoelEtherton it wouldn't be an easy victory, but it'd certainly be arguable. The UK has extensive regulation of consumer and credit contracts that can easily override unfair terms in the contracts themselves.
    – GS - Apologise to Monica ♦
    Dec 30, 2020 at 16:19
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    @JoelEtherton That is incorrect for the UK. Looking at two of your claims: (A) "doesn't matter that it's unfair" - section 62(1) of the Consumer Rights Act 2015: "An unfair term of a consumer contract is not binding on the consumer." (B) "I didn't understand that last part [is not an effective legal argument]" - section 68: "(1) A trader must ensure that a written term of a consumer contract, or a consumer notice in writing, is transparent. (2) A consumer notice is transparent for the purposes of subsection (1) if it is expressed in plain and intelligible language and it is legible."
    – JBentley
    Dec 31, 2020 at 3:17
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Yes, there are circumstances, including perhaps yours, where taking the “0% financing” option is a bad idea.

Generally, the fine print of these types of arrangements include a snarl: The interest accrues, but is forgiven at the end. However, if you are late on any payment, the 0% deal goes away, and they add in all of that interest that has been secretly accruing. You, of course, pay your bills on-time, but things happen: you might forget to sign a check, or you lose track of the date, or your account number changes and you forget to update your automatic payment. Any of these could result in a large financial loss.

On the other hand, what are you gaining by delaying the payment? You are earning next to nothing on your money in the bank.

In this situation, there isn’t really much financial benefit to waiting four years to pay it all off, and a big risk of unexpected interest and fee charges if you take their offer. My advice to you is to just pay it in full now, and enjoy your new furniture worry-free.

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    Even if you set up an automatic direct debit payment, banks sometimes make mistakes. I once missed a monthly mortgage payment because the bank accidentally canceled the payment from the wrong account number (i.e my account not someone else's). Luckily, apart from the hassle of sorting it out there were no financial consequences.
    – alephzero
    Dec 29, 2020 at 18:29
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    This is the big downside "if you are late on any payment, the 0% deal goes away, and they add in all of that interest that has been secretly accruing". I've also seen them where you aren't required to make any payments and after the initial period expires, you are hit with all the interest you have accrued. I'll note that I've take advantage of these kinds of plans many times. One trick is to make two payments every cycle. This helps mitigate some of the risks you mention.
    – JimmyJames
    Dec 29, 2020 at 21:42
  • Or someone blows up the AT&T communications center, and wipes out your service just when you needed to make the payment.
    – jamesqf
    Dec 30, 2020 at 4:07
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    "You are earning next to nothing on your money in the bank.". Investing $2000 in an ETF right now will most likely get you a good deal more than "next to nothing" over 4 years. You simply set up an automatic payment once and are done with it (although it's interesting what would happen if the bank fucked that up - but in over a decade of having multiple automatic payments that's never happened once to me).
    – Voo
    Dec 31, 2020 at 15:11
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    @Voo Borrowing money to invest in the stock market is a terrible idea, in my opinion. Yes, on average the market goes up, but in a short timeframe like this, it could be up or down when you need the money. Also, on a four year loan, you don’t wait four years and then pay it all back. You need to make a payment every month, and if you don’t have that money elsewhere, you’d need to sell some shares every month to make a payment, which would reduce any potential gain you are trying to achieve by borrowing money for investing.
    – Ben Miller
    Jan 1, 2021 at 11:44
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The big thing that some people miss is that this is a loan. They will do a credit check, and it will appear in your credit file. Sometimes at the end of the process you essentially have a credit card or line of credit with that vendor, because they don't close the line after the last payment is made.

That initial credit check will impact a persons credit score. While the loan is being paid off the required monthly payments will count against their available credit.

You may not want to do this if you know in the near or mid term you are going to be getting a new mortgage, or a car loan; and these negatives will complicate you getting the loan you want.

This is in addition to the sneaky way some of these plans hit you with a penalty rate if you miss a payment, or require you to pay all the forgiven interest if there is a balance at the end of the term.

Do the math. See how much interest you can save with you plan to pay extra on your mortgage. Many years ago some people suggested to use a home equity loan to buy a car. I did the math and realized the higher rate of the home equity loan even with it being deductible meant I would save $30. Not $30 a month, but $30 over the entire 36 months. It wasn't worth the credit check or extra paperwork.

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    OP asked about £, not $. But it seems to me that this answer is strongly US specific. Is there such a thing as “credit score” (and all other stuff you mentioned) in the UK?
    – törzsmókus
    Dec 30, 2020 at 9:15
  • Taking out a loan, and repaying it on time, could improve your credit score.
    – vclaw
    Dec 30, 2020 at 9:32
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    @törzsmókus yes, there is, and as far as I understand the U.K. system (by virtue living here) most if not all of what mhoran_psprep has written would be true in the U.K. also. There are a few big companies like Experian and Equifax that provide credit checks and they will also allow consumers to see their current credit score and what’s on their record (potentially for a fee). See which.co.uk/money/credit-cards-and-loans/credit-scores/… for more detail.
    – Nick Kennedy
    Dec 30, 2020 at 9:58
  • If you already own a home and don't plan to get new loans any time soon, there's zero reason to worry in the slightest about your credit rating. I've stopped tracking mine right after my mortgage closed.
    – JonathanReez
    Dec 30, 2020 at 18:17
  • @NickKennedy It's worth adding the qualification that hard searches (what this answer calls "the initial credit check" typically only stay on file for 12 months. That will be irrelevant if you actually go ahead with the loan though. It's also worth considering that (highly situational dependent) having a relatively small amount of debt that you consistently pay on time can actually improve your credit rating as it establishes that you are a reliable payer.
    – JBentley
    Dec 31, 2020 at 3:48
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IF YOU MISS ONE PAYMENT...

they make you pay ALL the interest.

That's the trick.

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    While this is common, it's not always true. I've seen plenty of loans where this is true, but I've also seen several when the 0% interest is just there with no strings.
    – computercarguy
    Dec 29, 2020 at 22:17
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    @computercarguy: In France, I've seen 0% with no string commonly. The trick is that they get people to buy more/bigger than they need using the argument that they don't need to pay now. When the shop gets $300 benefits for a bigger sale rather than $200, they don't care if a few cents of that extra $100 are spent on interest rate.
    – Matthieu M.
    Jan 1, 2021 at 13:24
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Presuming you're qualified for the 0% promotion, and understand that this is a loan and under what circumstances you could still be liable for the interest (as outlined in other questions) , one huge thing for me would be:

Am I actually getting the best price by accepting the 0%?

I don't know if this is common in other places outside of the USA, but here a lot of times there will be multiple promotions:

  • One will be a 0% promotion as you're describing.
  • The other, sometimes in smaller or more confusing font, might be a discount if you're paying in full.

In your example of the £2000 purchase, this would be something like £2000 with 0% interest for X period of time or £100 (or maybe even £200) off the purchase if it's paid in full up-front in the store, instead of financing .

So, if you had all the money now, you could actually get a better detail, without opening a new loan, having to worry about certain circumstances that might end up causing you to pay interest, and ultimately get a better out of pocket price.

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    In the UK they can't describe it as 0% APR unless it genuinely is the same total payment as paying now. So they can't give a discount for paying up front if they are advertising 0% APR.
    – GS - Apologise to Monica ♦
    Dec 29, 2020 at 22:00
  • @GS-ApologisetoMonica , my apologies for any confusion. Not sure if it matters, but I meant a promotion in the store that was available if you didn't take the financing promotion. Not that you could finance and get X% off by paying the financing amount off in full. I updated my answer if that was how it came off.
    – conrad10781
    Dec 29, 2020 at 22:07
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    I mean they can't do that promotion either (as far as I understand the law). Because then the loan wouldn't genuinely be 0% APR as you could pay less by never taking it. UK consumer law is quite good at preventing misleading statements.
    – GS - Apologise to Monica ♦
    Dec 29, 2020 at 22:25
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One point to consider is that when savings interest used to be higher, there was much more to be gained from taking out a 0% payment plan as you could stash the cash you'd otherwise have spent into a high interest savings account and then withdraw the money as you needed it to pay off the plan. Radically oversimplifying the point, in essence it might pay you to take the 0% plan.

Nowadays, with savings interest rates so low, there is much less merit to having a 0% plan if you can just afford to pay the balance in cash from the outset. The administrative overhead of managing the debt might outweigh the convenience of spreading the cost and even cost you and do your credit rating damage if you fail to make the payments on time.

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  • However, in this case the OP has a mortgage which they can purportedly overpay (although OP should be careful to check the terms to make sure this can be done at the small scale they want without penalty). So the effective interest to be earned is whatever they are paying on their mortgage.
    – JBentley
    Dec 31, 2020 at 3:51
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I have been offered 0% interest several times for large purchases. In almost every instance when I pressed they would give me a better price if I paid cash.

The OP is not in this situation because he/she has already purchased the items. Next time ask for a discount rather than taking the 0%.

Also, the other posters are correct: They will try to trick you into missing payment and then charge you all the interest retroactively. Don't under estimate how aggressive they will be trying to retroactively charge you the interest.

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In addition all other possible issues (small print issues, raising prices before offering 0% APR etc.) that others have mentioned, there is also an elephant in the room - using this promotion as a trick played on your mind to get you to buy something right there and right now instead of thinking about if it is worth to you (and in majority of cases - spoiler alert - end up not buying it).

Useful way to combat this mind tricks and trying to find out if it is really a good deal for you, is trying to reverse the situation in your mind - If you had that furniture in your house right now, and some passerby asked you if you want to sell it for $2000 hard cash right now; would you accept the offer? If your answer is anything but solid "no way!" then that piece of furniture is most definitely not a good deal and you should not buy it, never mind if it is 0% APR or 90% off or 500 GBP rebate or whatever other marketing gimmick.

(Oh, And if money has ever been a problem or you ever bought a stuff you didn't really need; another good way to combat such Jedi mind tricks is never go shopping before writing down what you need to buy, and what is the maximum price you're willing to pay for it, and then refusing to buy any "great deal" that is not meeting that written down criteria.)

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    Just to add to this answer, something that works for me, is to thoroughly research the item category in question before settling on what you want to buy. There have been multiple instances where the perspective of 2-3 hours of research has discouraged me from an impulse buy.
    – jaskij
    Mar 16 at 1:23

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