We all know what they say: If it seems too good to be true, it probably is. But is this the case for interest-free purchases?
Unfortunately, yes.
In many cases, an interest-free purchase isn’t really the retail miracle it looks like.
Join us as we reveal the darker side of no-interest offers and how they can actually cost you more in the long run.
What is an interest-free purchase?
This term refers to a retailer’s offer of letting you own an item now while paying for it later. Sometimes you’ll be required to pay an initial deposit for the purchase, while other deals will let you take it home without any upfront payment.
As the name suggests, this type of purchase comes with a repayment window in which you won’t be charged any interest on the credited amount. However, what seems like a buy-now-pay-later dream can quickly turn into a nightmare once that interest-free window closes.
Excessive Interest on “No-Interest” Purchases
Most interest-free purchases are only interest-free for a limited time. If you pay back the full amount within that timeframe, you might escape the deal unscathed. But if you’ve still got credit owing when time is up, be prepared for an exorbitant interest rate (potentially up to 30%) to come into play.
Even if you intend to pay back the full amount within the terms of the contract, be sure to check the fine print to find out what kind of interest they will charge if things don’t go according to plan.
It’s also worth doing some calculations when deciding how much of the purchase to pay off each week/month to ensure you accrue the entire amount comfortably in time. Interest-free purchases are often designed with minimum repayment instalments that won’t cover the whole expense within the set time, so sticking to the minimum isn’t a good idea unless you’ve done the maths to make sure it’ll work out.
No Interest, But Plenty of Fees and Charges
Your no-interest arrangement might come with a range of fees and charges such as:
- Late payment fees
- Establishment fees
- Monthly service charges (which can really add up over long contracts).
Everyone’s guilty of occasionally ticking the “I have read the terms and conditions” box without actually doing so, but this is one situation where it’s vital to check the terms thoroughly. Understanding the potential costs of your interest-free purchase can help you decide if it’s really worth it.
Interest-Free Credit Card Offers
Some interest-free offers come with a store card, which essentially functions as a brand-specific credit card. These cards often carry a higher interest rate than standard credit cards, and they won’t have the same interest-free window as your actual purchase. In most cases, you’ll be better off using your regular credit card for additional purchases – compare the interest rates to confirm this.
Alternatives to Interest-Free Purchases
If you’re considering a no-interest offer, it’s likely because you can’t afford to buy an item outright at the moment. An interest-free arrangement is rarely the ideal way to purchase the product sooner.
Instead, one of these alternatives may be more suitable:
- Enquire about lay-by if the store offers it and you don’t need the item immediately
- Open a separate savings account to build up funds for this specific purchase
- Get a small cash loan to cover the expense.
Whatever path you choose for your purchase, it’s important to research all your options and read the terms carefully to ensure you’re making the right decision. Feel free to contact our friendly team to explore the option of taking out a small personal loan up to $1,000.
Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.