Lets say you, like I did, you wanted a new laptop. At the time, you didn’t have the £1500 to buy it outright, but you had a regular job and have no real outgoings to speak of. You could easily afford to put away £150 or so aside each month. Armed with this knowledge, you walk into the nearest PC World store and take advantage of their “12 months 0% interest/Buy Now, Pay Later” deal to get the laptop you want (a rather sweet Samsung X10, mega-thin, Centrino job). No problems, right?

A month goes by and you’ve dutifully put aside your £150. The same happens the next month, and the next. Then, at 4am one night, you get a call: your girlfriend has gone into labour (”Eh? What happend to the 9 months pregnancy bit?”). You need to get things for the baby and fast. Before you know it, all your savings are gone. No problem, you have a couple of bonuses coming up - they’ll take care of the laptop. It’s a shame babies are amazingly expensive and instead of managing to save anything, your debt pile is building higher and higher - those bonuses turn into nothing more than temporary relief from credit card companies.

Soon, you’re coming to the end of the 12 month term on your laptop. You dig out the contract to remind yourself what it will cost you per month. It’s then you see the clause stating that although you’ve not had to make any payments for 12 months, the 0% interest only applies if you pay the balance before the end of the 12 month term; if it’s not paid, the full 12 months interest will be applied. The normal rate for this type of deal is about 13%. You don’t need to be good at maths to know that adds up to a lot of extra money.

If you’re anything like me, your reaction would be along the lines of “bugger”.

While the example above may be extreme (it’s true though), it’s an illustration why these types of deals are bad. Nobody can tell the future. You don’t know if your car will need to be replaced, if you’ll get a large, unexpected tax bill, or any other major expense. 0% finance deals are nothing short of a gamble. You’re gambling on your ability to pay back the loan before the term expires. If you fail, you have to payback the interest which you thought was “free”. The interest builds from the moment you take the finance deal and invariably is on a rate close to credit card level (read: very high).

The same principle applies to 0% balance transfers/purchases offers on credit cards. There really is no such thing as a free lunch when it comes to consumer credit.