Interest Free Deals

Interest free deals sound like the perfect way to buy the things you want now and pay them off later without being charged any interest. While they might be interest free for a period of time, these types of credit are certainly not cost free.

Interest Free Credit Card Offer

The NAB Low Rate is currently offering interest-free purchases on your credit card. To find out more about this offer, and the terms and condition, follow the links below through to the NAB Credit Cards website.

• $49 annual fee
• 13.24% p.a. on purchases
• 4.99% p.a. for 6 months on balance transfers
• Cash Advance Rate of 21.49%

Click here to read the NAB Low Rate Visa Card terms and conditions

Getting the Most From Interest Free Deals

The temptation to sign up for one of the many interest free deals being advertised by retailers is huge for many people. These kinds of offers are usually available on many consumer items, from electrical goods, furnishings, computers, whitegoods and many more.

The object behind interest free deals is to allow the customer to take the goods now and then pay for them later on a credit agreement signed at the retail store. The goods are supplied by the retailer, while the finance is usually supplied by a separate finance company.

In most cases, these finance companies will advertise that credit terms are available for an interest free period between 12 months and 5 years. This kind of advertising can seem very appealing to many consumers.

However, while the appeal of getting the items you want right now on interest free terms sounds great, the reality is there are usually fees and charges added to the purchase cost you thought you were paying.

Before you sign up for any interest free deals, be sure you fully understand what you’re signing for and how much it will really cost you.

Shopping Around

Most people spend a bit of time shopping around to find the best possible price on the TV or fridge or other household item they want to buy. Comparing different features and inclusions for various models and then checking out the prices charged by different retailers seems to be a common trend these days.

However, not many people go to the same amount of trouble to shop around for the right finance deals available. They simply trust the finance company’s advertising spiel that tells them they’re getting an interest free deal without considering that different lenders will have very different terms, conditions, fees and charges attached to the finance offer.

Before you sign your credit offer, take a little time to read through the associated charges your account may attract and understand the implications within the terms of your credit contract.

Compare Costs

Although the advertising spiel tells you clearly that you can apply for interest free terms on the items you want to buy, that same advertising often doesn’t make it so clear that there are fees and charges attached to the credit offer. You might think you’re getting your goods interest free, but they’re certainly not cost free.

You may find that some finance companies will charge application fees, administration fees or establishment fees. Some may also charge a monthly service fee or account fee on top of the set-up fees.

Your credit contract should also outline the penalty fees and late payment fees if you happen to miss a payment or pay after the due date. It’s also important to check the interest rate that may apply to your account once the interest free period expires and how it’s calculated.

Another surprise cost that could arise is the fee on the credit card some companies may supply as part of the interest free credit contract. The card limit might only be for the same amount as you borrowed to purchase the goods you wanted, but the credit card itself may attract annual fees, interest charges, late fees or cash advance fees.

Interest Free Terms

Before you sign your interest free credit offer, be sure you understand the terms of the finance you’re applying for. If you misunderstand the finance offer you’ve signed, you could be risking high fees and charges for late fees, penalties and potential interest charges.

In most cases, interest free deals come in two forms: instalments and deferred payments.

Instalment loans mean you are expected to make regular monthly repayments by the due date shown on your statement. The amount you pay is applied to your outstanding balance to reduce the amount you owe each month.

Deferred payments are often advertised as ‘Buy now and pay later’ deals, which allow you to take the goods you want now and not make any payments until the agreed finance contract date. When the contract expires, you are expected to repay the entire amount borrowed, plus any associated fees or charges that may be charged.

Interest Free Expiry Date

If you’ve signed up for a 3 year interest free deal, then it’s your responsibility to remember the interest free expiry date. Your finance company is not obligated to remind you or send you notification that your interest free term is ending, so you could find your next statement after this date has high interest charges attached to it.

The easiest way to avoid this happening is to spend a few minutes before you apply for your finance working out the best way to repay the debt long before the interest free period ends.

Repaying Your Finance Before the Interest Free Expiry Date

Far too many people trust the amount shown on their monthly statement, expecting that this will be sufficient to repay the balance by the end of the interest free term. Unfortunately, most credit and finance companies will show your repayments on your statement as being 3% of the balance owing or $40, whichever is the larger amount.

If you continue to repay only this minimum payment amount, you can expect to still have a balance outstanding at the end of the interest free term, which will attract very high interest charges until you repay it in full.

In order to avoid being charged any interest on your purchase, it’s important to calculate your monthly repayments so that they should repay the entire balance prior to the expiry date. Your finance company probably won’t calculate this figure for you – it’s your responsibility.

The correct way to calculate the right amount to pay each month is to add up the purchase price of the item, plus any fees and charges added to this amount when you applied for the finance. This is your total cost figure.

Now consider how long your interest free deal is supposed to extend and turn this length of time into months by multiplying the number of years by 12. For example, if you have a 3 year interest free period, then this will be 36 months.

Divide the total cost amount by the amount of months you have left on your term and this new figure will be the amount you need to pay each month in order to repay the entire balance before the expiry of the interest free term.

Linked Credit Cards on Interest Free Deals

Many finance companies may automatically send you a credit card as a part of the finance deal you accepted. Depending on the lender, the credit limit available on the card may be higher than the amount of the goods you bought. This can mean you have some credit available to spend on other purchases.

While this sounds tempting, don’t give in and use this credit card for other purchases, or you could find that the interest rate charged is significantly higher than you expect.

You could also find that your repayments are re-allocated automatically, which means your monthly payments will be put towards repaying your purchases first and not your interest free balance. This increases the risk that you will still have a balance outstanding at the end of the interest free term which will be charged at a high interest rate.

Multiple Interest Free Deals

Some people often have multiple interest free deals going at the same time with the same finance company. You might have needed to buy a new fridge, TV and computer all at around the same or similar time, so having more than one deal to repay while being charged no interest can sound appealing.

However, it’s important to understand how your finance company will apportion your repayments or you could be facing some complications. This can get even trickier if you also give into temptation and use the credit card to purchase other items as well.

While you might think the repayments you make each month to your lender are for each individual amount, the lender may be splitting each payment to put towards other aspects of your debt balance. For example, if you’ve been using the credit card that came with your interest free deals to pay for other purchases, then this amount will be charged interest right away.

Your repayments will be split to repay the interest-attracting portion of your balance first, which means your interest free balance isn’t reducing as quickly as you thought.

Before You Sign

While interest free deals sound great on the advertising spiel, it’s important you spend the time to understand how much you’re really being charged for your finance. You should also take a few moments to work out the actual monthly amount you need to pay to clear the debt before the interest free expiry date.

These simple steps could save you a lot of money in the long run.

• Comparison of Top 10 Credit Card Offers

Editor's Choice: Our Top Credit Cards

Credit Card	Card Details	Interest Rate (p.a.)	Cash Advance Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Interest free days (up to)
HSBC Credit Card	Editor's Choice: 0% for 6 months Balance Transfer & No Annual Fee Featuring a $0 annual fee for life, and 0% p.a. balance transfer for 6 months, the HSBC Credit Card was voted the Best Transactor Credit Card for 2010.	16.99%	20.75%	0% for 6 months	$0	55
Suncorp Clear Options Standard Visa Card	A great 12 month balance transfer offer, combined with a low annual fee and a good interest rate on purchases.	12.24%	17.99%	1.9% for 12 months	$39	0