Money Management

Interest-free financing can be a great tool — but read this before borrowing at 0% APR. 

We’ve all seen the signs at retailers, advertising things like “no interest until 2025” or “0% APR financing for 12 months.” Some of these offers might sound too good to be true, so here’s a rundown of the types of interest-free financing you might see, the advantages of each, and how they can potentially become a financial trap if you’re not careful.

Several forms of 0% APR financing

Consumers might see several different versions of 0% financing deals. Here are three of the most common types, and some of the pros and cons of each.

0% intro APR

Many credit cards offer 0% introductory APRs as a welcome bonus for new members, usually for a period from nine to 18 months, and on purchases as well as balance transfers. These can be an excellent tool if you have existing high-interest debt, or if you want to finance a purchase that you’ll be able to pay off before the introductory period expires.

Having said that, these deals can be a trap if used to buy things you can’t afford simply because you don’t have to pay interest and the minimum payments are low. Plus, with these deals, keep in mind that your interest rate will switch back to your standard rate as soon as the introductory period expires.

Deferred-interest financing

This is a type of 0% APR financing that can be a serious trap if used incorrectly. The reason is that these deals aren’t technically 0% APR financing at all, but simply defer all of the accumulated interest on the account.

For example, you might see something to the effect of “no interest if paid in full within 24 months.” What the fine print likely says is if you don’t pay the entire balance within 24 months, your 25th bill will reflect all of the interest you would have paid the entire time and is usually based on a relatively high interest rate, often in the 30% range.

I had a college roommate who learned about this trap the hard way. He financed a $2,000 TV using deferred-interest financing with 24 months to pay the balance off. The problem was the required payments weren’t designed to pay the entire balance in time. By the end of 24 months, he had paid back all but $300. However, because there was still a balance, he got hit with about $800 worth of deferred interest charges.

Buy now, pay later

Buy now, pay later, also known as BNPL financing, is a relatively new trend. Offered by companies like Affirm, Afterpay, and others, BNPL allows customers to spread their purchase over a certain number of payments, often with no interest. If you’ve ever seen the ads for interest-free financing for a Peloton bike, that’s a form of BNPL, as are the checkout buttons that are appearing on most e-commerce websites these days that say things like “spread this purchase over four monthly payments.”

BNPL can certainly be a trap if used improperly. For one thing, it’s easy to get in over your head with required monthly payments if you tap the BNPL button every time you shop online. And second, many of these services charge steep penalties and have interest that kicks in if you’re late with a payment.

Key takeaways

There are a few important points to keep in mind after reading this:

0% APR financing can be a great financial tool if used properly. If you use a cash back credit card that has a 0% intro APR, you can actually make money by financing purchases this way. Even deferred-interest deals can be smart ways to pay for large purchases in certain situations.Be sure you know what you’re getting into. Are you using true 0% APR financing or a deferred-interest financing deal? Are there fees involved (common with 0% APR balance transfers, for example)? What happens if you miss a payment?Spend within your means. The biggest reason 0% APR financing can be a trap is when people use it to buy things they otherwise wouldn’t. If you buy things you need and can afford with 0% financing, it can be a smart decision, but if you use 0% APR financing to overspend, it can be a quick way to get into trouble.

The bottom line is that like most financial tools, 0% APR financing can be a trap, but it doesn’t have to be. When used responsibly, it can save you money and make it easier to manage your debts. But if abused, 0% APR financing can lead to serious money problems.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Affirm. The Motley Fool has a disclosure policy.

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If there are issues with a home inspection, you may have a few options. Keep reading to learn what you can do in this circumstance. 

If you are buying a home, there are a few steps you’ll have to take before you get the keys to your new place in your hand. You’ll likely need to get approved for a mortgage loan so you can borrow the funds needed to make your purchase. And, you will typically also want to get a home inspection.

In fact, this is so important, you should make your offer contingent upon a satisfactory inspection. That would mean that your purchase was conditioned upon an inspector writing a report about the home’s conditions so you could review it and determine whether you wanted to move forward.

But, the big question is, what happens if a home inspection turns up problems? If that occurs, here’s what happens next.

You can negotiate with the sellers

If you have made your offer to buy the house contingent on an inspection, you have some leverage. Since you have the right to walk away, you can try to re-open negotiations with the home’s current owners.

Typically, there are a few different options you could pursue when an inspector finds a problem.

Ask for a credit or price reduction

One option is to ask the sellers for a credit or a reduction in price. For example, say that the inspector found out that the home’s roof was old and damaged and needed to be replaced. Since the average cost of a new roof is about $10,000, that’s a big deal.

You could ask the seller to provide you with a credit, so you would keep the cost you pay the same and walk away with the $10,000 needed to make the repairs. Or you could ask the sellers to reduce the price of the house in this circumstance. If you were going to pay $450,000, for example, you could ask the seller to reduce the cost to $440,000 so you could then pay for the roof to be fixed.

A big benefit of asking for the price to be reduced or the seller to give you a credit is that you can then make the repairs yourself and arrange to do it with a repair person of your choosing. But, the downside is, if the seller simply lowers the home’s price, you’d have to then come up with the $10,000 out of pocket to pay for the roof repairs after closing.

Ask for fixes to be made

You could also ask the sellers to actually make fixes based on what the inspector found. For example, you could ask that they repair or replace whatever the report said was wrong. This would simplify your life since you wouldn’t have to do home improvement work upon moving in. But, there are downsides. You won’t know if the repairs are done well, and the sellers have an incentive to try to do them as cheaply as possible. And, sometimes sellers also can’t afford to pay out of pocket for big expenses before the home sells, so this could be another obstacle.

Still, if you definitely still want the house after an inspection shows problems, you’ll most likely want to pursue one of these two approaches and see if the sellers are willing to work with you on either option.

You can walk away from the deal

Another option is to just walk away.

If you made the sale contingent on a satisfactory home inspection, you should get your deposit money back if you follow the contract requirements (which may include providing notice within a set time).

If you didn’t make a contingent offer and you walk away, you could lose your deposit, which would be bad but perhaps not as bad as going through with getting a mortgage on a home that had major issues.

The key is, you will have these options only if you made your offer conditional. So be sure to do that so you will have a choice of how to proceed if a problem with the home inspection unexpectedly turns up.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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When your credit score reaches 850, you’re in great shape to borrow. Read on to learn more. 

Your credit score is far from a random number. It’s a snapshot of how risky or trustworthy you are as a borrower.

The higher that number, the less risk lenders take on when they give you a loan or approve a credit card application. The lower that number, the more risk they bear.

As such, borrowers with higher credit scores tend to not only have an easier time qualifying for loans and credit cards, but also, snagging more favorable interest rates. And so it’s a good idea to get your credit score as high as possible.

Credit scores range from a low of 300 to a high of 850. And so once you reach the 850 mark, there’s nowhere upward to go, because you’ve achieved perfect credit.

At that point, your borrowing options are looking pretty good. But what if your score is lower? Just how hard should you be pushing yourself to get to 850?

A number that’s hard to attain

Experian reports that as of late 2021, 1.31% of consumer credit scores were perfect. So clearly, if your score is not at an 850, you’re in the majority.

You also don’t necessarily have to stress about your credit score not being perfect. Once your score reaches the upper 700s, you’re generally in a strong position to be approved for a loan or credit card, and at a great rate. And once your credit score crosses over the 800 mark, frankly, it doesn’t really matter what exactly it looks like.

To put it another way, let’s say you’re applying for a mortgage with a credit score of 830 and another borrower is coming in with an 850. Chances are, you’ll both not only get approved for a loan, but snag the lowest rate your lender is able to give you. So as long as your credit score is in good shape, it’s really not worth worrying about not having perfect credit. Getting to 850 won’t necessarily change things for you if your credit is already excellent.

How to give your credit score a boost

It’s one thing to not chase perfect credit. But if your score could use work, boosting it might make it easier and more affordable for you to borrow. So if your score is stuck in the 500 or 600 range, or even the lower 700s, it does pay to take steps to raise it.

One really great way to do that is to pay every single bill of yours on time. Your payment history carries more weight than any other factor when determining your credit score, so if you get into a pattern of paying on time, your credit score might increase notably.

At the same time, aim to keep your credit utilization low. Ideally, you should try not to carry a credit card balance that’s beyond 30% of your total credit limit. And if your utilization is higher, paying off some credit card debt could help your score improve.

Finally, make a point to check your credit report for errors that could be working against you. Right now, you can request a free copy every week from each of the three credit bureaus — Experian, Equifax, and TransUnion.

You don’t need a perfect credit score to open up borrowing options. But you do need strong credit. So if your score could use a boost, it’s worth making an effort to bring that number up — even if you never actually make it to 850.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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When I decided to increase my housing budget, it became necessary to get a mortgage. Read on to learn why I didn’t want to spend the needed money in cash. 

Getting a mortgage loan can be a huge pain. It takes a lot of time to get all of the documents together that mortgage lenders require — especially since I am self-employed. There are also a lot of costs associated with borrowing to buy a home, including mortgage origination fees and required appraisals, which can cost a few hundred dollars.

Because I really dislike getting home loans, I vowed once not to ever get another mortgage loan. I’ve recently changed my mind, though, and there’s a good reason why.

Here’s why I had a change of heart about getting another mortgage

There’s a simple reason why I changed my mind about whether to get another mortgage loan. Here’s what happened: I realized that I had to sell one of my current homes that was paid for outright, and I really wanted to move to a more expensive home, so the proceeds of my current sale wouldn’t cover the entirety of the new purchase.

See, I was living in a house that turned out to have terrible traffic problems and it was making my family miserable. We essentially felt like we were prisoners who were trapped in the home because driving anywhere took far longer than it should (an especially big problem with a young child who hates being in her car seat and screams the whole time we’re driving).

We decided we needed to relocate, and after an exhaustive search of homes around the area we wanted to be in, we realized we were going to have to upgrade and buy a more expensive house. And we could not afford to do that with the proceeds from the sale of our current home.

While the proceeds from the sale of our existing house would give me a generous down payment, the only way I would be able to avoid getting another mortgage would be to sell a ton of my investments. And I simply wasn’t willing to do that.

Since moving was something we considered to be necessary and I didn’t have the cash to cover the cost of a new home, getting a mortgage seemed like the best option.

Why I didn’t sell my investments to buy a new house

I could have sold some of my investments to give me the money to purchase my new home, or at least to put a much larger down payment on it. But, it doesn’t make financial sense for me to do that.

Even at today’s mortgage rates, which are higher than I’d like them to be, I can still get a better return on my money by leaving it invested in the S&P 500 than I would if I pulled the cash out of my brokerage firm and sunk it into my home. I don’t want to tie up too much money in a house either since it’s not a liquid asset (it takes time to sell and there’s no guarantee I’d get my asking price).

The downsides of not getting a mortgage outweighed the upsides, as they often do for home buyers, which is why even people who could afford to do so often don’t pay cash for houses. So, even though getting a mortgage is a huge pain, it’s worth it for me — and for most home buyers — because borrowing to buy a home makes sense due to the low return on investment on saved interest.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More