Finance explained: Retail interest free deals
The end of the year is fast approaching. We all know what that means – Christmas! We all love getting and buying presents, sometimes more for ourselves than anyone else. But the urge to splurge comes in many different forms. Retailers will try to entice people to buy big electronics and appliances with “interest free” deals offering “no repayments” until a later date. That all sounds well and good, but what does that really mean for you? The team at Smallloans.com.au tell you that and more in this instalment of Finance Explained.
What the retail shops want you to think
When the shops need to make way for newer stock, they may entice people to come in and buy items with “interest free” monthly repayments or “buy now, pay later” deals. The latter of the two are called “deferred payment” deals. Sometimes your retailer will ask for a small up-front deposit, and others may advertise the deal as 100% no money down. You might think this is great – paying off the total cost over a set number of months without any interest on top of the cost of the item.
What it all actually means
When repaying monthly, what these shops hope you do is pay back the item with minimum monthly repayments. Why? Because the minimum is far below the amount required to pay it all off before the interest starts being charged. Sometimes you will find you are not allowed to make extra repayments and pay the item off in the interest free period. After the interest free period expires, you could be paying interest rates as high as 30% – almost double that of a consumer credit card.
Interest free isn’t cost-free
These interest free purchases are rarely ever cost free. The shop may charge you an establishment fee, monthly service fees and late payment fees. The monthly service fee could cost you hundreds of dollars after four or more years. Deferred payment deals might slug you with huge fees and charges after the interest free/no repayment necessary period. They may ask for a huge amount in a relatively short period of time.
Store credit cards
Usually shops and stores will issue you with an in-store credit card when you enter into these deals. These cards have higher limits than the cost of your purchased item. Also, they will have higher interest rates than consumer credit cards. If you can, ask for the limit to be reduced to the cost of your item. Otherwise, cut it up and never use it! It might be worth sticking to your credit card for future purchases. Of course, a great alternative is taking out a small cash loan. Lenders are tightly regulated by ASIC, follow sound practices and you will always know exactly what your obligations are from the minute you sign up.
Remember to do your homework
If you are tempted by these deals, make sure you know exactly what you’re getting into. If you want to take advantage of the interest free period, insist on making repayments that will pay off the item in full before the interest rate kicks in. Don’t trust what the slick-talking salesperson says about how you can afford this great offer; they’re just after a sale. Remember, you can ask for layby options (paying off in instalments and taking home the item after it’s paid off). If there’s anything you can’t go past, it’s your choices! You don’t just have retail shops to choose from, you can also pick online stores and online marketplaces such as Gumtree and eBay. Don’t just settle for the first place you find!