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What does 0% APR mean and how does it work? | .What Does 0% APR Mean? | Capital One
Sometimes, your business needs to acquire equipment that you know will make money in the long run, but short-term cash flow issues make it tough to pay the costs. Perhaps you start looking at financing options and find a great-looking deal that offers zero annual percentage rate APR and zero down payment.
Seems like an easy win, right? Maybe not. When you go to buy equipment, you might see a deal from a captive finance company, which is a company that provides financing directly through the equipment seller. If you purchase from Caterpillar, you could finance through Cat Financial.
To get people to use the in-house captive financial company instead of a bank or an independent financing partner, the captive finance company may offer a special promotion: either zero down, zero APR, or both.
Fixed Interest Rates for Equipment Financing. However, remember that there are no free lunches in financing. Companies that provide financing have to make money to stay in business, and the way they do that is by charging fees and interest. Captive financing companies are no different. But because these companies work directly with the equipment manufacturers, they can set purchase prices and otherwise adjust the terms of the transaction so they can make money without charging interest at first.
Some of the ways captive finance companies adjust zero down and zero APR deals to make money include:. Zero down and zero APR are just marketing strategies that companies use to sell financing, and like most marketing, you need to take it with a grain of salt. Instead of going right for the zero down and zero APR deals you see advertised, do a bit of extra homework and evaluate all your financing options. Take as much time as you need to read the fine print on a deal.
As always, make sure your business credit score stays strong by paying your bills on time, not borrowing more than you can pay back, and not taking out too many credit lines at once. In the end, you may find you can get better financing terms and pay less overall than you would if you took a zero APR deal. Ready to get started?
Applying is easy! For financial advice, please contact our commercial financing experts. Each month, Team Financial Group sends out a newsletter comprised of the latest content from our blog and news from the financial world.
If you'd like to receive the next newsletter, fill out the form and you'll be added to our list of subscribers. What Are Zero Down and Zero APR When you go to buy equipment, you might see a deal from a captive finance company, which is a company that provides financing directly through the equipment seller.
To offset this risk, the financing company may require a very high credit score to qualify for the deal. High interest rates after introductory period: Often, the overall interest paid on zero APR deals is the same as for other types of financing.
The financing company simply charges a much higher interest rate after the zero-APR period ends to make up the difference. You never see these hidden costs, and you end up paying for the financing without even knowing it.
What is zero apr - what is zero apr. How do 0% APR credit cards work? 8 things to know before applying
The Truth Behind Zero APR/Zero Down Equipment Financing - Team Financial Group
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Getting a break from finance charges can be a welcome change from the double-digit interest typically charged on credit cards. Just use your card as you normally would.
Then, pay off the balance over time without incurring any finance charges for the life of the offer. Making a balance transfer requires a few more steps. Otherwise, you can contact your card issuer to initiate the balance transfer. If used responsibly, it can give you a cushion of time to pay off what you owe, without accumulating additional finance charges. If you need more than two or three months to pay off your debt, a balance transfer is likely to be a less expensive option.
These cards may be a better choice as long as you can pay off your debt before the interest-free period ends. Make a plan to pay off as much as you can—ideally, all of your balance—before the promotional period expires. Typically rewards are only earned on new purchases. The rare exception is the Priceline Visa Card, which offers up to 5, bonus points on balance transfers completed in the first 30 days you have the card. According to the Federal Reserve, the average APR charged in the fourth quarter of for credit card accounts that incurred interest was The cost of interest charges will quickly outweigh the value of rewards earned.
Features to consider:. If you open to many new accounts in a short period of time, it can signal to lenders that you might be too big of a risk to approve yet another line of credit. A larger consideration is what a big purchase or sizable balance transfer can do to your credit utilization.
Robin Saks Frankel is a credit cards and personal finance writer for Forbes Advisor. Previously, she covered credit cards and related content at other national web publications including NerdWallet, Bankrate and HerMoney. Follow her on Twitter at robinsaks. Select Region. United States. United Kingdom. Robin Saks Frankel. Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
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