0% Interest Gotchas

Car companies had a lot of success with 0% financing deals and, this holiday season, a lot of merchants are using them to attract customers.

I saw an article in the Chicago Tribune that had a couple of warnings about these deals:

1. You need to read the fine print. In a lot of cases, if you don't pay off the loan completely by the end of the 0% financing period, you could get hit with retroactive interest.

For example, you buy $5,000 worth of furniture on Dec.1, and the retailer offers no interest for 12 months. By Nov. 30 of the next year, you have paid off all but $200. You now get hit with backdated interest on the whole $5,000.

2. You may need to open a store credit card to get the 0% deal. This could hurt your credit score in two ways. First, by having too many credit cards. Secondly, the merchant might open your account with a credit limit almost equal to your purchase. Experts say you want to keep your balances at or below 35% of your limit.