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Beware of Zero Percent Financing

Last-Minute Shoppers Need to Read the Terms Carefully

December 20, 2005

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As you scurry about finishing up your last-minute shopping, watch out for the variety of offers many retailers are using to boost sales -- especially zero percent financing.

Such offers require no payment from consumers for several months or even one or two years after the purchase, but they charge high interest rates on any unpaid balance after the grace period.

"These offers are particularly popular in selling big-ticket items such as electronics and appliances," Missouri Attorney General Jay Nixon said. "If you pay the entire amount within the specified period, it can be a great deal."

"The problem arises if you pay nothing or only a little during the allotted time," Nixon said. "If that happens, then you’ll likely be charged an interest rate as high as 25 or 30 percent. You could end up paying much more for the item than you ever thought you would."

Nixon said there are a number of steps consumers can take this holiday season to avoid putting themselves in a financial hole of zero-percent financing deals:

• If you decide to sign on to such a deal, know when you are obligated to pay off the balance before higher rates kick in.

• Confirm what the interest rate will be if you fail to pay off the balance in the allotted time.

• Find out what kind of late fees the company charges.

• If you don’t think you will be able to pay off the balance before the higher rates begin, consider other financing options that may charge interest sooner, but at a lower interest rate,

• Consider delaying the purchase of items not necessary until you have saved enough money to cover all or a significant part of the purchase price.

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