The dangers of financing everyday purchases

We're used to reading phrases like "For only 30 euros a month" for a new mattress, a washing machine, or even a dream trip. In all these cases, we're receiving microloans through a credit card or a traditional loan. They're often presented as "interest-free," or at least that's what the advertising tells us.

However, to know the real cost of financing, companies are required to inform us of the TIN (nominal interest rate) and the APR (annual equivalent or effective rate). The TIN only includes interest, while the APR also reflects other expenses, such as origination fees, management fees, mailing fees, and others. Therefore, you should always pay attention to the APR: it's the only one that shows whether it's truly interest-free financing. Many ads boast a TIN of 0% but hide fees that can boost the APR to 20%.

It's also true that there are 0% APR financing options. Why are they offered? First, because they allow the company to increase sales even if it doesn't collect the amount all at once. Typically, the finance company is a third party to the store that ends up collecting it immediately. You owe the bank the debt. Second, because a significant part of the business comes from late payment interest. The real profit for the finance company comes, paradoxically, when there are defaults: much higher than usual interest is generated, along with management fees. Think about it: a 50 euro installment for a cell phone, even if it's late, is unlikely to go unpaid. You'll end up paying it with interest and surcharges.

Although it may be very tempting, you always have to be careful with these micro-installments and make sure they fit within your monthly budget. I use them often myself, but always being clear about my financial possibilities and the risks involved.