Real cost of flexible payments can be a shocker
A CHOICE investigation has revealed that flexible payment options in shops, particularly interest-free deals, can include fees that almost double the cost of the original item – something customers may not be told at the point of sale due to a regulatory loophole.
In a recent shadow shop of major retailers offering interest free deals, CHOICE found that five of the six gave incomplete or wrong information about important details such as interest rates, fees and conditions.
Only one salesperson gave an interest rate but it was not the same as the rate advertised on the store’s website. None of the stores offered a credit contract to the CHOICE shopper.
CHOICE says the fact that credit contact information falls legally on a finance company that provides the credit and not the retailer means consumers can be misled about important details at the point of sale.
“Often the interest free deal will be managed by a third party finance company, not the retailer. Given the retailers are held to a much lower standard when it comes to providing information about fees, interest rates and conditions, shoppers can’t rely on the sales assistant to explain how much the interest free or store credit deal will end up costing them,” says CHOICE spokesperson, Ingrid Just.
The people’s watchdog says a review of this loophole is needed to prevent shoppers being tied up in credit deals without realising – particularly as many these schemes come with very high fees.
Its analysis of interest free deals offered by major retailers found fees ranging from 22.3% and 87.6% of the cost of the item.
For example, a Braun shaver retailing at $549.95 could end up costing close to $700 with a David Jones three-year interest free offer if paid for using the retailer’s own StoreCard and almost $1000 using the Amex David Jones card.
“Most people would probably rethink the purchase, or at least how they pay for it, if they knew they would be paying almost double for it in the long run. Clever marketing always makes interest free deals look great but it’s easy to end up paying a lot more than the original price of the item,” says Ms Just.
The flexible payment options come in a variety of forms including: ‘buy now pay later’, interest free (instalments payable), interest free (minimum payment required) and no deposit (four years to pay). Whichever payment system is used, the customer has to apply for a store card to obtain interest free offers.
“The store cards can come with a hefty annual fee and the credit company isn’t obliged to remind you when the interest free period ends. We looked at cards with annual fees as high as $99, so you need to do your sums to see if it’s right for you,” says Ms Just.
CHOICE’s recommendations for flexible payment systems, including interest free deals:
- Pay the item off in the shortest time you can, before the due date.
- Do your homework so you know what the final cost will be - the sales person may not know the full story themselves and even if they do, they’re not compelled to tell you.
- A low-interest credit card may be better than a flexible payment option if you’re buying a lower cost item that can be paid off in a shorter time.
- Check your statements carefully to keep track of costs and the end of the interest free period.
- Read independent reviews about interest free deals, such as choice.com.au
Ingrid Just, CHOICE, Head of Media and Spokesperson: 0430 172 669