Interest-free deals let you take goods home or go on a holiday and pay off the cost over time. But interest-free doesn't mean cost-free.
Fees can add up quickly and if you don't repay the balance in the interest-free period, you'll be charged a lot in interest.
How interest-free deals work
With an interest-free deal, the cost of a product or holiday is put on a credit card or store card, which you pay off over time. The card has an interest-free period. After the interest-free period ends, you're charged interest on any amount not fully paid off.
To repay the balance on an interest-free deal you can:
- Pay by instalments — You make regular repayments towards the amount borrowed.
- Deferred payment — You don't make any payments until the end of the interest-free period.
If you pay by instalments, the minimum monthly repayment won't pay off balance before the interest-free period ends. You'll then be charged interest on the remaining balance. Interest rates are often as high as 29%.
Work out how much you need to repay each month to avoid paying interest.
If you miss a repayment, you'll have to pay a late payment fee and interest on the outstanding balance. With some travel deals, if you miss a payment, your trip may also be cancelled.
Different retailers offer different interest-free deals. Before you sign up, read the terms and conditions.
No interest ever deals
With no interest ever deals, you make regular repayments that pay off the balance over the loan term.
These deals can have high fees including:
- establishment fees
- payment processing fees
- monthly service fees
- late fees — if you miss a payment
Read the terms and conditions so you know all the fees and charges before you sign up.
How to make the most of an interest-free deal
Know the fees, charges and interest rate
Before you sign up, read the Key Fact Sheet to find out what you'll pay. Check how long your interest-free period will last, and what the interest rate is after that.
Pay more than the minimum repayment
The minimum repayments won't pay off the balance before the interest-free period ends. Before you sign up, make sure you can pay more than the minimum required amount. This way you'll pay it off before the interest kicks in.
Don't use the store or credit card for other purchases
These cards can charge a high interest rate on other purchases you make straight away.
Review your account regularly
Check the date your interest-free period ends when you get your statement. Make sure you're paying enough to pay off the balance within the interest-free period.
The lender doesn't have to remind you when the interest-free period ends.
Other ways to pay
Don't feel pressured to sign up for an interest-free deal or a 'limited time interest-free' offer. There are other ways you can pay.
- No or low interest loans -If you're on a low income, these can loans help you cover the cost of essential household items.
- Lay-by - Pay off the item over a number of equal repayments. You won't be able to take the item home right away, but there's no interest either.
- Savings - Use our savings goals calculator to see how much you need to put aside regularly to reach your savings goal.
Get help if you can't make repayments
If you're struggling to meet the payments on an interest-free deal, contact the lender. You have the right to apply to the lender for a hardship variation to make your loan more manageable.
You can also talk to a financial counsellor. They offer a free and confidential service and can help you get your finances back on track.
Michael and Mai get interest-free deals
Michael and Mai both get interest-free deals from their local department store.
Michael gets a 12-month interest-free deal for a $1,400 computer. It includes a $25 application fee, a $6.25 monthly service fee and a minimum monthly repayment of $50.
Michael decides to pay $125 a month. He pays off the balance in full in the 12-month interest-free period.
Mai buys a $1,200 fridge with a 12-month interest-free period. The deal includes a $25 application fee and $6.25 monthly service fee.
Mai only pays the minimum monthly repayment of $60. At the end of the interest-free period she has a balance of $580 owing. Mai has to pay 29% interest on the remaining balance, and will end up paying a lot more than the cost of the fridge.