02.How they work
Long-term payment offers usually come in four different types:
- Buy now, pay later You take your purchase home and don’t need to make any repayments or pay interest during the interest-free period. If you fail to repay it (along with all the fees) within the interest-free period, interest will usually apply on the remaining balance from the end of that period onwards.
- Interest free, instalments payable You pay off the purchase in equal instalments over the interest-free period. If you miss an instalment, interest will apply not only to that instalment but also to the remaining balance of your account.
- Interest free, with minimum payment required You pay a minimum repayment over the interest-free period and must pay the remaining amount before the interest-free period expires. If you miss minimum repayments, penalty fees will apply.
- No deposit, four years to pay You pay off the purchase over four years, interest applies from day one and there is no interest-free period.
- No interest ever - a new payment deal introduced in late 2013 called Fido allows fortnightly payments for a period between 12 to 36 months, usually with a 10% deposit. This payment offer eliminates one major trap of “interest-free” offers – an astronomical interest rate after the offer ends but scores worse than interest-free offers on the second trap: high fees.
Conditions often apply to these offers, such as upfront deposits and minimum purchase amounts.
The real costs
- You usually have to apply for a credit or store card to obtain interest-free offers.
- You may have to to pay an application fee, annual or monthly fee and high rate of interest.
- The credit card companies aren’t obliged to remind you when the interest-free period ends, so it’s important to check your statement carefully, especially if you use an interest-free offer that has a minimum payment.
- The minimum payment normally won’t cover the purchase price within the interest-free period, so you’ll need to make extra repayments or pay a lump sum at the end to avoid the interest slug.
The smaller your purchase, the greater the impact fees have on the value of the offer:
- With the GEM Visa Card you pay a flat annual fee of $99, and an automatic six-month interest-free period applies with any purchase over $250. But you can use it for as many interest-free purchases as you like without paying any additional fees. Depending on the offers available at different retailers, you can use it for more expensive purchases and longer interest-free periods as well.You could, for example, use it for a five-year interest-free offer at a furniture retailer to buy a $3000 lounge suite and make use of six months interest-free on a $260 anniversary dinner in a two-hat restaurant.
- With other cards, such as the David Jones StoreCard, you have to pay a new application fee and additional monthly fee with every interest-free offer.