If you are a frequent online shopper, you may have noticed that some retailers offer the option to pay with interest-free financing. These plans are either tied to the retailer’s credit card or a financing company like Affirm, Afterpay, or Klarna. While it may sound excellent that you have to pay in monthly instalments, especially on heavy items like furniture or electronics, you should know all about it 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. Other lenders may not disclose payments to the credit agencies, so responsible behaviour and on-time payments won’t help your credit score. To take advantage of interest-free financing on specific items, some payment plans, such as Apple’s, require consumers to apply for and use a store credit card. Choosing between an interest-free and a regular payment plan is more important: How much interest will you have to pay after the promotional time? Will you be able to use the credit card for more than that period? If the card’s interest rates and fees on non-promotional products would dissuade you from using it otherwise, switching to a different card might be a better alternative. There’s more on that 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.
