Wednesday, February 28, 2024
HomeBusiness0% finance

0% finance

0% financing or zero percent financing, alternatively known as discounted finance, is a widely used marketing tactic for attracting buyers of consumer goodsautomobilesreal estate, or credit cards in different parts of the world. For the buyer, the scheme is offered as a steal, without any levied interest for a specific period, subject to special terms or conditions.

Mathematics behind 0% finance

The financial mathematics behind the 0% finance scheme is somewhat complex, as the calculation differs with respect to the type of product and the country.[1] These deals are offered by finance companies or banks in conjunction with a manufacturer or dealer network. The schemes offer “zero percent” finance, where a customer pays for the financing cost in an indirect manner. The indirect cost will include paying a processing fee, a significant amount as advance EMIs (equated monthly installments), as well as a minimum cash down payment. Often, the biggest cost may involve forfeiting a cash discount which might otherwise be available on a cash purchase.

Suppose a customer opted for 0% finance to buy an electronic device worth $1000, offered on a term of 6 months’ EMIs, with a $50 application processing fee and one month’s EMI in advance. This sale actually results in a 12.48% effective interest rate for the customer.

Several central banks have reacted strongly to zero percent or discounted interest rate schemes and want them stopped, as they feel consumers are misguided by such schemes into believing that bank funding comes for free. As such, schemes serve the purpose of attracting and exploiting vulnerable customers.

Many agreements charge interest on the full price- backdated to the original purchase date- if the remaining debt is not cleared before the end of the free credit period. It has been suggested that credit providers make payment arrangements intentionally more difficult and exploit consumers’ expectation that they will be sufficiently reminded (either by not reminding them or by presenting the reminder in an inconspicuous manner) in order to invoke this clause and generate income. Moreover, it has also been noted that with higher-value purchases such as car deals, the costs for the 0%-financing are compensated by going up with the price of the item.

- A word from our sponsors -

Most Popular

More from Author

KUPPET Questions Government Directive For Parents To Pay Schools Fees E-Citizen Platform

KUPPET opposes the Government directive for parents to use eCitizen platform to pay...

List of The best AC Repair Companies in Nairobi, Kenya

List of The best AC Repair Companies in Nairobi, Kenya. Air...



- A word from our sponsors -

Bridging Cultures, Building Futures: The Kiige and Emmanuel Initiative for Immigrant Empowerment in Canada

In the heart of Canada's multicultural landscape, Duncan Kiige and Emmanuel, both celebrated public speakers with immigrant backgrounds, have become symbols of hope and transformation for new immigrants. Their recent conference on career and personal development marked a significant milestone in their mission to empower newcomers with...


The NRM government is very proud to see the example of our young people begin to build Uganda by putting up projects such as this one. We congratulate Ham Kiggundu for this excellent jobKAMPALA UGANDA| As sports lovers countdown to 2027 when the Nakivubo-based Hamz Stadium will...

Raila’s search for a post with the AU Commission could be a suitable trapdoor or departure.

In Kenyan politics, Raila Odinga has long been a mystery. His international performance? Even when the African Union designated him, he remained debatable.But he said on Thursday that he would run for the position of Chairperson of the African Union Commission. One diplomat tampered with his first...

Court Finds Jowie Irungu Guilty of Monica Kimani’s Murder

In a landmark ruling, Justice Grace Nzioka declared Jowie Irungu guilty of the murder of Monica Kimani. According to Justice Nzioka, the evidence presented convincingly establishes Jowie's culpability in the crime beyond a reasonable doubt.Highlighting the sequence of events, Justice Nzioka outlined how Jowie, armed with a...

KUPPET Questions Government Directive For Parents To Pay Schools Fees E-Citizen Platform

KUPPET opposes the Government directive for parents to use eCitizen platform to pay school fees calls for clear public participation, legislation and policy framework.KUPPET national officials have opposed the move by Government to force parents to use eCitizen platform to pay school fees saying it will be difficult for...

List of best Audiology Services in Nairobi, Kenya

List of best Audiology Services in Nairobi, Kenya. The word audiology is made up of two roots: Audio and Logy. ‘Audio’ refers to ‘hear’ and ‘logy’ to ‘the study of’. In essence, audiology is the study of hearing - as the inner ear is also required...