Understanding the real cost of interest free shopping
The washing machine has packed it in, the TV is on the blink, or you want to upgrade your computer. When you haven’t got the cash to cough up for a new one, those interest free deals can seem like your saviour.
Take it home today – nothing to pay?
Well, not yet anyway. But by the time you’re done paying off your interest free purchase, it could have cost you a lot more than you’d bargained for.
How interest free deals work
As with anything that seems too good to be true – there are a lot of hidden traps with interest free purchase deals. Here’s a few things to look out for.
You’re likely to pay more
- There’s almost always a minimum spend amount before your purchase can qualify for an interest free payment plan.
- So rather than nab yourself a bargain buy for a few hundred dollars, you can find yourself paying top dollar on a premium model, just to get your purchase price above the approval limit.
It reduces your negotiating power
- We all know cash is king when it comes to buying items like appliances and electronics.
- When you’re buying on an interest free payment plan, you almost always lose the ability to bargain on the price.
Interest free doesn’t necessarily mean you won’t pay interest
- Read the fine print. Sure, you mightn’t be paying interest on your purchase – but only if you pay it off within the agreed term.
- Check carefully to see if the required repayments across the term of your contract will actually have your purchase paid off in full by the time the period ends.
- Sometimes only a minimum payment amount is required. If this is all you pay, you’ll still have an outstanding balance at the end of the initial repayment period. After that, you’ll be paying interest on your purchase.
- And this interest will often be at ridiculously sky-high rate of almost 30%!
Interest free doesn’t mean fee free
- You might avoid paying any interest – but you probably won’t avoid paying fees.
- Fees like an establishment fee, account keeping fees and late payment fees are likely to hit your hip pocket hard.
- Do your homework and factor the cost of these fees into your purchase. Be sure it’s really worth it.
Credit card trap
- Many interest free payment plans are in fact a credit card account.
- This means that as well as paying off your new purchase, you’re now dealing with the temptation of using this new credit card for other purchases that you perhaps can’t really afford.
Remember – cash is king!
- When you’re shopping for items like furniture, appliances and electronics, you’re always going to get a better deal if you’re paying with cash.
- If you don’t have cash on hand, instead of taking out an interest free payment plan, applying for a fast and easy cash loan might be much simpler and cheaper option for you.
- City Finance can help – call us on 1300 34 62 62 or pop into your local branch today for a chat with our friendly staff.