While interest free financing always sounds attractive, its important to understand how the process works. Most interest free programs are very punitive to the patient if the patient fails to pay the loan off during the interest free promotional period. For example, if you have a 12 month interest free program thru Care Credit and you fail to pay the loan off in full during the promotional period, the interest will accrue from day 1 at 29.9% and be added to the back of the loan. In effect, you have not received interest free financing, but rather paid 29.9% interest on your loan. In addition, your provider has also paid 9.9% of their fee to provide you this interest free option.
Other programs convert the loan to a term loan after the interest free period expires charging you 29.9% interest on your remaining balance. While this is not quite as bad, nobody really wants to pay an interest rate of 29.9%.
Advance Care provides you a 14-month true interest free period with no cost to the provider. Everything the patient pays during the initial 14-month interest free period is applied to the principal of the loan allowing you to pay the loan off quickly. If you do have a balance after the 14-month promotional period expires, you simply are subject to interest only on the remaining balance. No accrued interest, you simply pay interest only on your remaining balance. Interest rates start at 13.74% and can go up depending on the credit of the patient. You can see the advantage that Advance Care provides the patient and the provider. Even if the patient takes 24 months to pay the loan off and pays 15% interest the last 10 months, the blended interest rate is still less than 5% which is very competitive. The sooner you pay the loan off, the less expensive it is.
When patients consider interest free financing as opposed to a fix rate installment loan, its important they have an idea of how long it will take them to pay the loan off. For example, if the patient borrows a large amount and still has a large balance at the end of the interest free period, they could pay a higher rate than they would with a long-term installment loan. Here’s an example:
Loan amount: $10,000
Installment Loan Interest Rate: 6.9%
Term: 48 months
Monthly Payment: $235
Total Interest Paid: $1,273
Loan amount: $10,000
14 Months Interest Free
Interest Rate After Interest Free Period: 16%
Remaining Balance After 14 Months: $7,500
Blended Interest Rate: 12%
Interest free financing can be a great way to save money, but it’s important you consider the total cost of the loan when deciding if interest free is right for you.