What interest-free deals really cost you

Interest-free deals can be appealing if you don’t have the funds to pay for a product outright and – provided you meet repayments – are cheaper than paying it off with a credit card. Getting approved is quick, ads claim. You can do it in-store or online before you start shopping.

However, while the deals may be interest free, they’re seldom fee free. As well as a fee to set-up the contract, most interest-free finance deals sting you with a yearly service fee. Annual fees mean the longer you take to pay off your purchase, the more you’ll pay overall.

For example, if you sign up for a five-year interest-free deal on a $1870 clothes dryer from Harvey Norman, extra fees will add $315 to the purchase price.

At Noel Leeming, putting a $1999 washing machine on a 30-month instalment plan with Purple Visa would result in you ultimately shelling out $2219.

Fine print

If you fail to make repayments on time, late-payment fees and high interest rates can quickly turn a purchase into an expensive lesson.

Miss a repayment and you’ll be whacked with a $10 to $15 late-payment fee with the finance options available through big retail chains, such as Big Save Furniture, Harvey Norman and Farmers.

Failing to clear your debt within the interest-free period can also prove costly. Of the six finance products we looked at, the interest rates that kicked in ranged from 22.90 to 25.99 percent per annum (see our Table).

Minimum payments are another potential trap. The minimum monthly repayment amount required under the finance agreement may not be enough to pay off your purchase during the interest-free period.

Interest-free deals offered with Gem Visa at Harvey Norman require a minimum monthly payment. However, the store says paying the minimum “will not reduce your balance to zero during [the] promotional period”. To pay off your debt before Gem Visa’s 25.99 percent interest hits, you’ll need to pay more than the minimum, or opt for its instalment plan. The latter requires fixed payments during the interest free period to pay off your purchase.

For interest-free purchases made on a Q Card or Q Mastercard flexi-payment plan, your monthly statement won’t require any payment during the interest-free period. Technically, you don’t have to pay anything during this time (apart from the annual card fee). But leave the debt unpaid and the interest will quickly start to bite.

Who you’re dealing with

Gem Visa and Q Card are common finance cards promoted with interest-free deals.

Gem Visa is provided by Latitude Financial Services. Q Card is backed by Consumer Finance, owned by Australian outfit Flexi Cards Group. It also owns Columbus Financial Services, which provides Q Mastercard and Farmers Mastercard.

Finance Now also offers fixed-instalment and interest-free deals at various retailers. The retailers determine how many months the instalment plans will run for (from six to 60 months) and the interest rate, if any. Finance Now is owned by SBS Bank, and provides the Purple Visa Card through SBS Money.

Your rights

Lenders must make information about their standard terms and costs of borrowing available on their websites and in-store. Before you sign a contract, they must also give you key information about the terms. This includes the fees, interest rate and total amount you’ll pay (this is called “initial disclosure”).

If you change your mind about the contract, you have a cooling-off period of five working days to cancel the deal if you get the initial disclosure in person. If the information is emailed, the cancellation period is seven working days from the date sent. If it’s posted, the period is nine working days from the date mailed.

You need to be aware that if you cancel the credit contract within the cooling-off period, and you’ve received the goods, you’ll have to find another way to pay for the item, unless the retailer agrees to take it back. If you haven’t received the product, you can cancel the credit contract and the purchase.

If the lender isn’t treating you fairly, or hasn’t met its side of the bargain, you can make a complaint to a financial dispute resolution scheme. All lenders must belong to a dispute scheme and give you details of how to contact the scheme.

What you’ll pay

These examples show fees you’d pay signing up to a new finance card. Fees could add between five and 16 percent to the purchase price.

Big Save Furniture

Purchase example: Albion dining suite, $1399
Difference between advertised price and finance deal: $105
Total cost of finance deal: $1504
Deal: 12-months interest free
Finance product: Q Mastercard Flexi Payment Plan
Additional fees: $55 establishment fee + $50 annual fee

Farmers

Purchase example: Sleepyhead balance lotus firm queen sized bed, $2299
Difference between advertised price and finance deal: $130
Total cost of finance deal: $2429
Deal: 18-months interest free
Finance product: Farmers Mastercard
Additional fees: $55 establishment fee + $50 annual fee ($75 over 18 months)

Harvey Norman

Purchase example:  Bosch 8kg Condenser Clothes Dryer, $1870
Difference between advertised price and finance deal: $315
Total cost of finance deal: $2185
Deal: 5 years interest free
Finance product: Gem Visa instalment plan advance
Additional fees: $55 establishment fee + $52 account fee ($260 over 5 years)

JB HI-FI

Purchase example: HP Pavilion 14-ce3061TX 14” laptop, $2299
Difference between advertised price and finance deal: $130
Total cost of finance deal: $2429
Deal: 18 months no payments and no interest
Finance product: Q Card
Additional fees: $55 establishment fee + $50 annual account fee ($75 over 18 months)

Noel Leeming

Purchase example: Fisher & Paykel 8.5kg FabricSmart Top Load Washing Machine, $1999
Difference between advertised price and finance deal: $220
Total cost of finance deal: $2219
Deal: 30 months interest free
Finance product: Purple Visa
Additional fees: $55 establishment fee + $55 annual account fee ($165 over 3 years)

Fees and interest