Sometimes we have our hearts set on a big-ticket item that our wallets just can’t afford.  But then something magical happens.  You find out there’s an ongoing promotion for a zero interest loan.  Perfect.  You can make your purchase now and pay it off over time without any interest.  Sounds like a win/win situation for you and the salesperson, right?  Not so fast.  If you’re not careful, you may end up with a much larger bill than you were expecting.  Here’s why.

Limited time only

Based on all the commercials, you probably already know that zero interest offers are only good for a limited time.  Once the offer ends, your loan will become a lot more expensive because the interest rate increases tremendously.  How high you can expect your rate to climb depends on your credit score.  Normally, lenders charge between 6 to 36 percent interest on personal loans.  Chances are you won’t get a friendly reminder before the offer ends, so you need to be on top of your game.  Mark your calendar with the promotions end date and aim to pay off your balance a few weeks in advance.  You never know when something will go wrong so don’t wait until the last minute.  If you’re already having trouble paying your bills, this isn’t the best option for you.  One late or missed payment and the deal is off the table.

The wording is key

When it comes to special financing offers, paying attention to the language being used can save you a lot of money.  Good zero interest promotions usually say something like “0% APR for 36 months”.  Meaning, you won’t pay any interest on your balance during the promotional period if you make your payments.  When the promotion ends, the current interest rate kicks in and is applied the unpaid balance from that day forward.

However, some no interest offers are really deferred interest loans in disguise.  Watch out for advertisements boasting phrases like “same as cash” or “no interest if paid in full”.  If you pay your balance in the allotted time, you’re good to go.  Come up short and you’ll pay dearly.  Even if your unpaid balance is just 50 cents, the lender will tack on all the interest that’s been quietly accruing since day one.  This can unexpectedly add hundreds or thousands of dollars to your bill.  Therefore, it’s important to carefully read and understand the details of your contract.

Not everyone will qualify

The main goal of these promotions is to get you through the door so you can spend, spend, spend.  You may even buy things you don’t need because you think the offer is just too good to miss.  Don’t take the bait though.  In exchange for a 0% APR, you’ll be charged the full sticker price which can increase your monthly payments.  Plus, unless you have excellent credit, you won’t qualify.  Typically, you’ll need a credit score of 720 and above to close the deal at the advertised rate.  So if you have shoddy credit, you’ll pay a lot more than you originally anticipated.

To avoid wasting your time, you can use a site like myFICO to access your credit reports and FICO score.  Even if you don’t plan on taking out a loan anytime soon, check your credit report annually anyway.  Doing so will help you spot inaccuracies or fraudulent accounts opened in your name which can hurt your score.