Key takeaways

• Deferred-interest loans, often advertised as “No interest if paid in full” are often misunderstood by customers who think they are interest-free.
• Deferred-interest loans only charge 0% interest if paid in full after a promotional period. If just a penny is owed at that point, the borrower must back-pay all the accrued interest.
• A true 0% APR loan, on the other hand, does not accrue interest — and is truly "0%."
• 0% APR loans are superior to deferred-interest ones. (An example in this piece shows how a job costing $2,400 with a 0% APR loan can end up costing a customer over $4,200 with a deferred-interest loan.)
• Of those who understand deferred interest, 65% of people say they’d view a store that charges it negatively, and 77% think it is unfair.

When "0% interest" isn't 0%

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.

Deferred interest (the one to dump)

(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.)

0% APR (the one to keep)

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?

What’s in it for you

"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:

• Happier customers. Customers who sign up for a deferred-interest loan without understanding it may unexpectedly end up paying a lot more than the total cost of a job, negatively affecting their opinion of your service. And for those who do understand deferred interest, 65% have a negative opinion of a business that charges it and 77% of them think it’s unfair. Honesty always prevails. And a true 0% product is a lot more honest than a deferred-interest one.
• Repeat business. When your customer trusts you, you are more likely to earn their business again and that of their friends. And repeat business is one of the most effective ways to increase revenue, plain and simple. 
• More referrals. A referral from a trusted friend is powerful. When you exceed customers’ expectations, from the quality of your service to the transparency of your payment options, you’ll leave your customers an impression so good that they can’t help but rave about your business to others.

Interested in enrolling in extended 0% APR add-ons*? Learn more here.

Not yet signed up with Wisetack? 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.