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.
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, which can come with a hefty annual fee and high rate of interest. The GO MasterCard charges 29.49% interest on purchases not paid off within the interest-free period, while the Amex David Jones card has a $99 annual fee.
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. This 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 a 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 automatically get 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.