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Money Management, tips and advice - Concepts and insights to help your business

Interest Free?

Interested in Interest Free?

Reading time: 1 - 2 minutes

It seems to be all the rage, and has been for a while, to offer interest free finance, particularly in retail. But there are, as always, pitfalls to be avoided.

Minimum payments

Generally not enough to repay the loan during the interest free period, meaning you'll need to make higher repayments to avoid interest. May need to make arrangements for these additional payments otherwise the additional amount may be held in credit against future minimum repayments.

Interest rates

Interest will start to be charged at the end of the interest free term, usually at a very high rate - often 20%s or more. There could even be penalties for not paying the balance off, within the interest free period.

Payment default

If you default on the loan (eg miss a repayment during the interest free period) it is not uncommon for the loan to cease being interest free. Best to set up regular direct debts from your bank account to ensure that all payments are made on time.

No discount

Ever notice that when you buy an item with an interest free loan that theres never a discount on the purchase price  The retail store will normally share a percentage of the sale price with the financier to ensure that the financier receives some payment in the event that you repay the loan within the interest free period.

High fees

Even though there may be no deposit and interest, most loans do charge application and monthly fees. It is not uncommon for these monthly fees to be $4.95 per month, being nearly $60 per year.

Interest free offers can be great, but they need you to be disciplined otherwise you'll get into a debt you never imagined, one that can be hard to get out of.

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