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Watch your step

Avoid falling into a credit trap this sale season

Last updated: 01 June 2023

Australians love a bargain, so the end of financial year sales are typically a peak season for retailers. But this year, cost-of-living pressures mean it's particularly important to avoid the traps that retailers and finance companies lay for enthusiastic and unsuspecting shoppers. 

The biggest of those is to trick you into walking out with a debt you hadn't planned for. We've all seen the ads spruiking interest-free periods, but that's not how most of these arrangements pan out. They usually turn into high-interest loans or credit cards at the end of the period, leaving many people with debts they can't afford to repay. 

One of the worst examples of this is the partnership between Harvey Norman and Latitude, which we highlighted through a Shonky Award in 2020. If you fail to pay off a purchase within the interest-free period and are transferred to a Latitude Go credit card, you'll face a whopping interest rate of 25.9% per annum – one of the highest on the market. That's sure to cost more than anything you might have saved in discounts.

Amex was recently taken to court by the Australian Securities and Investments Commission (ASIC) over sales practices that allegedly saw some people who thought they'd signed up to a loyalty scheme ending up with a credit card. ASIC pointed to the unusual percentage of people who subsequently cancelled their David Jones Amex card – presumably because they were surprised to learn they had one. This case is still before the courts, but provides a helpful warning to shoppers.

Don't get tricked into thinking buy now, pay later products are any different to other credit products

Another trick at the point of sale is to persuade you to pay extra for an 'extended warranty'. Regardless of what the manufacturer says about its warranty period, you've got strong rights under the Australian Consumer Law (ACL). The consumer guarantees under the ACL require goods to be fit for purpose and to last for a reasonable period of time. If there's a major failure within a reasonable time after purchase, you are entitled to a refund, repair or replacement. Whenever we examine the terms and conditions of extended warranties, we find they offer little or no extra protection, so you may find yourself paying for something that largely replicates your existing legal rights.

Finally, don't get tricked into thinking buy now, pay later products are any different to other credit products. While they have been designed to get around credit laws, in reality they are very similar to a personal loan or credit card; if you can't make the repayments, you can end up paying a lot more.

CHOICE is campaigning for changes to the law to stop the worst of these practices, but in the meantime, it pays to take a healthy dose of cynicism before heading to the sales.

Stock images: Getty, unless otherwise stated.