0% Equipment Financing:
Too Good to Be True?

When a lender doesn’t charge interest for a specific time, it’s referred to as 0% financing. How long an interest-free period lasts depends on the lender and the type of product, but it can generally range between six months to two or more years.

Zero interest loans are often used as a marketing strategy to boost buyer interest and close a deal sooner. When people finance heavy equipment, lenders know that they can increase sales if the customer doesn't have to pay interest for a specific amount of time. But it’s important to be aware that 0% financing doesn’t necessarily mean you save money in the long run.

Lenders may make up for the lost revenue during the interest-free period by:

• Increasing the overall principal value of the equipment
• Upselling buyers on extra features, services or extended warranties
• Extending the payment term the same amount as the interest-free period
• Shortening the payment term to drive up the payment amounts

Regardless of the payment terms, it’s important to know that no lender is going to take a loss on earning interest. So, it's important to make sure you carefully review and understand your payment schedule and term agreements.

You might have different equipment financing options that allow you to choose between interest rate or annual percentage rate (APR) financing. APR financing is a single rate. It includes the interest rate plus fees that may be associated with the loan, like insurance or delivery costs.

An interest rate is solely the interest, and any applicable fees need to be paid on top of that rate. Because APR includes additional costs, it’s always a higher amount than the interest rate. The higher the APR, the more the buyer pays over the term of the loan.

When deciding whether 0% financing is a good deal, it’s critical to read the agreement and fully understand the terms. Find out when the interest-free period ends and what your payments will become at that point. Determine whether there are any penalties for missing a payment during the interest-free period and whether there are prepayment penalties. Ensure your business can cover the entire cost of the loan for the duration of the agreement.

Some things to consider when determining whether to choose 0% equipment financing include:

• Income stability: Is your cash flow stable enough to make payments after the interest-free period ends? Consider factors that can impact your cash flow, like economic changes, seasonal fluctuations in work, labor shortages and other complications.
• Cash purchase: Does your business have enough capital to purchase the equipment outright? If so, it may be better to pay for the equipment in full to avoid paying interest over time.
• Tax deductions: Another consideration when financing equipment is the tax implications. Interest can often be considered a business expense because it’s part of financing a capital cost. Zero interest loans may inhibit your ability to deduct sufficient expenses during that interest-free period.
  
  

It’s important to understand how equipment financing will impact your bottom line. When choosing financing options, consult a business investment expert to determine your budget.

Use the Cat loan payment calculator to see how monthly payments fluctuate with different interest rates and down payment amounts. 

*Subject to approval. Terms and conditions apply.

Cat equipment financing with Cat Financial makes equipment ownership easier. We offer coverage on a range of equipment, parts, services and protection plans that provides a stress-free path to financial planning for your business.

Some of the types of equipment that your business can finance through Cat financing include:

• New and used machines: Invest in a new or used machine for your business. Whether you’re in construction, landscaping, mining or warehousing, Cat financing helps you succeed in getting the right heavy equipment for the job fast.
• Generators and select engines: With Cat financing, you can ensure your business has the power systems it needs to run smoothly.
• Attachments and work tools: Financing options from Cat Financial can help cover the cost of servicing, including replacements with Cat genuine parts. You’ll also get financing coverage on your next investment in attachments and work tools to make your equipment more versatile and your business more productive.
• Extended protection: When you choose Cat equipment, you have options to help protect equipment. Equipment Protection Plans (EPP) provide coverage beyond standard machine warranty for parts and labor, and protects you from unplanned repair costs from covered defects in Cat material and manufacturer workmanship. Contact your local Cat dealer to discuss your coverage options.
• Cat Customer Value Agreements (CVAs): A Cat CVA makes owning and maintaining your Cat equipment a breeze. Developed specifically for Cat customers, the CVA provides you with a personalized preventative maintenance schedule so you focus on keeping your business moving forward whatever your industry and whatever your Cat equipment.

Learn how much your business can afford to finance. Use our convenient Cat affordability calculator.