If you shop online often, you may notice that some retailers offer interest-free financing. These plans are either tied to the retailer’s credit card or a financing company like Affirm, Afterpay, or Klarna. Paying in monthly installments may sound great, especially for big items like furniture or electronics. However, you should understand all the details before choosing this option. Here are some pros and cons of interest-free payment plans.
Pros of Interest-Free Payment Plans
These retail payment methods let you pay in instalments over a certain period. When you reach the store’s checkout page, you’ll see a payment plan listed as one of the payment methods. You’ll apply for financing immediately from the store’s partner lender on the checkout page. If approved, you’ll be given an interest rate and repayment schedule similar to any other loan. Moreover, several stores offer deals, discounts, and interest-free payment plans, which means you can save extra bucks with easy payment tenure. Stores like shop zero discount codes and others provide the latest deals to their visitors with interest-free payment plans. Interest-free payment plans are unique because, as the name implies, many shops and point-of-sale financing firms offer a trial period with no interest. For example, Afterpay divides your purchase into three or four equal payments, with no interest charged to clients who qualify. Klarna allows customers to split a cost into four interest-free instalments or pay 30 days later. Affirm is more like a traditional personal loan in that it customises your interest rate and payback plan based on your credit profile.
Cons of Interest-Free Payment Plans
If you don’t yet have a credit card or prefer to make a monthly payment toward a purchase instead, payment plans are a good option. However, because this payment option is new to many consumers, it comes with disadvantages. If you use Affirm, for example, and don’t pay off an item during the promotional period, you could face interest rates as high as 30%. If you don’t pay on time, Afterpay will charge you an $8 late fee. Klarna claims it may execute a hard credit inquiry when you apply for loans, which will appear on your credit report and result in a temporary credit impact.
Since Affirm transmits payment activity to Experian, you’ll see a positive payment history on your Experian credit report when you pay bills on time. However, late or missed payments will hurt your credit score. Some lenders may not report payments to the credit agencies. This means responsible behavior and on-time payments might not improve your credit score. To use interest-free financing on certain items, some payment plans require a store credit card. For example, Apple’s plan asks consumers to apply for and use its credit card. Choosing between an interest-free and a regular payment plan is important. Ask yourself: How much interest will you pay after the promotional period? Will you be able to use the credit card beyond that period? If the card’s interest rates and fees on non-promotional purchases are high, you might be better off using a different card. We will cover this in more detail later.
Wrap Up
So, here you have the pros and cons of interest-free payment plans. In the end, it depends on your personal choice whether you want to try an interest-free payment plan, avail of online voucher codes to save a few bucks or do both.
