ASIC today launched a new interest-free deal calculator on its MoneySmart website to help Australians make the most of ‘interest-free’ credit.
95,000 Australians took up an interest-free deal in 2012, and of these 52% had an interest-free deal worth more than $2,500.
ASIC Deputy Chairman Peter Kell said: ‘Interest-free deals can be a useful way to pay for an expensive item provided you can afford to pay off the debt in full by the end of the interest-free period. If you don’t, it is likely you will get hit with an interest rate of typically around 28 percent on the remaining balance.
‘For example, if you buy a $3,000 lounge setting on a 24 month interest-free deal and only make the minimum repayments, e.g. $95 initially, you won’t pay off the debt within the 24 months. At the end of the interest-free period you will still owe over $850 on which interest will be charged.
‘To use an interest-free deal to your advantage, use the MoneySmart interest-free deal calculator to help you work out an amount that will pay off the total within the interest-free period. In this example, $131 per month pays off $3,000 within 24 months.’
ASIC’s MoneySmart website’s top tips on interest-free deals:
- Use the interest-free deal calculator on ASIC’s MoneySmart website to work out your own repayment plan to ensure you pay off your purchase by the end of the interest-free period. The minimum monthly payment suggested by the retailer is often not enough to pay off the full purchase price before the interest-free period runs out.
- Check for fees such as a monthly service fee or a late payment fee or early repayment fee. These add to your costs. You will find these by reading the terms and conditions in your credit contract.
- Compare the interest-free deal with alternatives such as lay-by or a debit card, which may be a cheaper way to shop.
- If you take up a ‘Buy now, pay later’ deal and don’t make any payments until the end of the no-payment period you will start being charged high interest on the full amount at the end of the period. Use the interest-free deal calculator to work out how much you need to repay regularly so you pay off the balance within the no-payment period.
- If you are issued with a store card, check the interest rate and fees before using it to make additional purchases. These may not be interest-free and may impact your repayments.