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Insider s guide to interest-free deals
Posted on 2010-07-20
EVERYONE wants things they cannot afford.
That's why we need to budget and save.
But if you actually need a new fridge, not just want one, then consider an interest-free deal if you cannot wait to save.
Consumer
finance lenders say interest-free shopping is smarter and cheaper than
using a credit card or personal loan for big-ticket items such as
televisions, computers, whitegoods and furniture.
That's because if you pay off your purchase within the interest-free period, you won't pay any interest.
Interest-free
retail promotions have become popular ways to buy larger items as you
can spread the cost over a longer period, often up to 36 months.
GE Money managing director Greg White said more than 80 per cent of
its customers never pay any interest because they pay off the full
purchase price within the interest-free period.
Interest free is not a debt trap, Mr White said.
A
total of 300,000 GO MasterCard customers did not pay any interest in
2000 and 70 per cent of those customers later bought another product
using the interest-free option.
However, an interest rate does kick in if you haven't paid off the full amount within the set period.
The best way to avoid this is a direct debit to ensure the purchase is paid off in the interest-free period.
Funnily
enough, Gerry Harvey, the retail king of furniture and electrical
retailer Harvey Norman, is not a fan of interest-free deals, despite
his stores offering them.
"No way, I will always pay for things in cash," he said.
"I've
never bought anything on a time-payment, whether that's a motor car,
house or fridge. I won't buy anything unless I have got the cash money
to spend.
"My view is, if you can afford it, always pay cash,
that way you haven't got that constant blood-sucker coming out every
week or fortnight."
That said, the affable billionaire has been offering these finance packages to his customers for years.
"People
tell me all the time that they are on their fourth or 21st
interest-free purchase. But the ones that write us letters and are very
unhappy don't pay, and get hit with the penalty interest rate," he said.
"It
is pretty hard to be too sympathetic if they've had two years or 50
months interest-free and they still have not paid it off. What the hell
do they expect?"
Current interest rates for these types of deals
depend on the finance company but can be about 29 per cent after the
interest-free period ends.
Typically, finance lenders receive a
payment from the retailer of between 1 per cent and 21 per cent of the
purchase price for providing the interest-free period.
In addition to this transaction, they also get an introduction to the retailer's clients.
"We
pay GE a certain amount of money, depending on the deal, and they then
(also) hope to sell these customers insurance and other loan products,
car finance, boat finance," Mr Harvey said.
Types of interest-free deals
Interest free
Minimum
monthly payments are needed. These won't pay out the whole amount
within the interest-free period but you can choose to pay more without
penalty.
Buy now pay later
No
monthly repayments required. As long as you pay out the amount within
the interest-free period, you will not pay any interest. You can choose
how often you make repayments within the interest-free period.
Myth
If
you fail to pay off within the interest-free period, interest is
backdated to the original purchase date and is calculated on the
original purchase price.
The truth
Interest is only calculated after the expiry date and only on any remaining unpaid balance.
Source: www.interestfree.com.au
DISCLAIMER: Every care has been taken to verify the accuracy of the information contained herein, but no warranty is given or implied and prospective purchasers/ tenants are advised to carry out their own investigations. Details herein do not constitute any representation by the vendor. Lessor or the agent and are expressly excluded from any contract.