You’ve heard of “no interest if paid in full” plans, also known as deferred-interest plans. Maybe you even offer them to your customers. But despite how common these plans are, you’d be surprised at how many customers enroll in them without fully understanding what they entail.
Trust us, it’s a lot more than you think. Or trust this WalletHub study, which found that 56% of people don’t understand how deferred interest works.
The main reason behind this confusion is that many customers believe they won’t be charged any interest with deferred-interest plans. This is not only wrong, but the amount of interest they accrue and have to pay back with these plans can actually be significantly greater than expected. What they think they are signing up for instead is a true 0% interest loan, which does not accrue or charge interest (either for a fixed period or for the entire loan). Of course, the latter is a much more enticing option.
And because an informed customer is a happy one, here’s how you can educate your customers on the difference between deferred-interest loans and true 0% APR (annual percentage rate) loans — and why you should dump deferred-interest loans today.
(Please silence your boos for a second while we explain this.)
On paper, deferred interest looks a lot like 0% interest. Your customer signs up for a loan, doesn’t see any interest charged in the first few months — all is great. But there is one crucial distinction: the 0% interest ends after a promotional period. After that, financing providers charge a regular interest rate that’s usually extremely high (for instance, retailers often charge 24% or higher for their store-branded credit cards).
If the customer hasn’t paid off their entire balance by the end of this period, they will have to pay back all the interest they’ve accrued, even if they just owed a penny. And because of the high interest rate, the back-owed interest often comes out to a significant amount. Check out the chart later in this article to see the potential financial repercussions of a deferred-interest loan. (You may now resume your boos.)
On the other hand, when a borrower signs up for a 0% APR offer, there is no risk of accruing interest. If the offer ends after a promotional period, they will only have to pay interest on their loan balance at that time.
Wisetack offers 0% APR loan options for eligible customers. With these options, the 0% interest is valid for the entirety of the loan. So as long as they make their monthly payments, they’ll never owe more than the total cost of the job. Customers can rest assured that they will never accrue deferred interest or incur late fees of any kind.
Look at the chart below. Would you ask your customer to pay $4,200 for a job that only costs $2,400? The cost difference is stark and could be why your customer experiences financial hardship down the road.
Fun but not-so-fun fact: Deferred interest is so intentionally complex that even our math-iest people had a hard time calculating the numbers for this chart. If brilliant finance minds struggle with it, how could customers not?
"65% of people view a store that charges deferred interest negatively."
When it comes to offering a true 0% APR option, the benefits to the customer are clear, but you might be wondering what’s in it for you. Here’s what you should expect:
Want to learn more about our 0% APR rates? Or about us in general? Contact us and we’ll show you how Wisetack can boost your sales by providing your customers with fair, easy and transparent financing that can be obtained in seconds.