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Interest free loans
When you are strapped for cash and the credit card has reached its limit, taking advantage of deals offering NO deposit and NO interest for a number of months or years can make that dream TV, computer or home theatre system seem more affordable.
Many retail stores offer interest free loans. The period that the loan is interest free will vary and can depend on the amount borrowed.
Credit for interest free loans is usually provided by a finance company through the retail outlet.
Some of these finance companies will send you a credit card as part of the credit contract. If you use this credit card outside any ‘interest free’ promotion then interest and charges will accrue in the same way as other credit cards. But the interest rates for credit cards issued by finance companies are usually higher than those offered by other types of lenders.
You need to read the credit contract carefully. This type of credit may only be interest free if you pay the entire amount borrowed within the stated ‘interest free period’. If you don't pay off the entire amount then interest may be charged from the day the credit was provided.
Minimum Payments
Statements that are sent to you may also state a minimum repayment. This will not pay off your purchase ‘interest free’. Also, any payments made usually go to pay off the part of the credit that attracts interest, so you may not be paying off your 'interest free' product in the time required.
These 'interest-free' deals often come at a price. Consumers need to be more diligent about contracts and know exactly what they are getting themselves into.
Beware the fine print. It might be small but its message is important.
People have been caught out because they didn't fully understand the fees involved and the serious financial consequences of not paying the loan off within the interest-free period.
Make it work for you
If you are smart about it though, you can make 'interest free' work for you.
Know the terms and conditions, note the exact timeframe of the 'interest-free' period and calculate how much you need to pay each month to pay in full by that time
