Hidden fees can hike up the price of interest-free offers.
Tempted by ads for interest-free deals? These offers can be enticing, particularly if you don’t have cash on hand or want to spread payments over time.
But while they’re interest-free, they’re seldom fee-free – and these fees can quickly make the deals much less attractive.
Take a $1000 fridge advertised on a 60-month interest-free term. Harvey Norman offers these deals through Gem Visa. To take up the offer, there’s an establishment fee of $55 and an annual $52 card fee each year after that. Over five years, these fees come to $315. Your $1000 fridge has now cost $1315, a 32% increase.
If you miss a payment – or don’t pay off the purchase within the interest-free period – you’ll have to open your wallet a lot wider. High interest rates can also sour these deals. The interest rate on a Gem Visa is a whopping 25.99%.
Minimum payments are another potential trap. With some interest-free deals, the minimum monthly repayment under the finance agreement may not be enough to pay off your purchase during the interest-free period.
Before you sign up
As with any purchase, do your research before signing up to an interest-free deal. Compare the price of the product with what it costs in other stores.
If you’re still keen to go ahead, make sure you check the total cost of the purchase. Traders have to give you information about the costs, including fees, before you sign on the dotted line. If they fail to do so, they’ll breach the Credit Contracts and Consumer Finance Act.
They also have to comply with the Fair Trading Act, which means they can’t mislead you about the price of goods.
If you’re offered insurance
You may be asked whether you want to buy insurance, either to cover the goods you’re buying or to cover repayments in the event you can’t meet them.
However, if you’ve got contents insurance, you may already have cover. The trader shouldn’t recommend you take out insurance if it will double up on a policy you already have.
Payment protection policies, which kick in if you lose your income, may also be offered. These policies typically have numerous exclusions and can provide little value. Read the policy to see what you’re getting for your money and whether it’s worth the extra cost.
How to cancel the deal
If you buy an item on credit – whether it’s a new fridge or a car – you have a "cooling-off" period to cancel the deal.
The cooling-off period starts from when you’re given the written disclosure statement, which sets out your loan details including your repayments, the fees and interest charges.
If the disclosure statement is handed to you in person, you’ve got five working days to cancel. If it’s emailed, you’ve got seven working days. And if it’s sent to you by post, you’ve got nine working days from the date the statement was mailed.
However, be aware if you’ve already taken possession of the goods and want to cancel the credit agreement, you still have to buy the items – so you may have to find alternative finance.
If the product isn’t of acceptable quality and you reject it under the Consumer Guarantees Act, the trader can be held liable for the loan. You can apply for an order from the Disputes Tribunal formally transferring your repayment obligations to the retailer.
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