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 typically put on a credit card or store card, which you pay off over time. The card has an interest-free period that applies for goods or services provided by a retailer.
An interest-free deal is different to buy now, pay later. 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 may be able to choose to:
- Pay by equal instalments — You make the same regular repayment over the interest-free period totaling the amount borrowed.
- Pay by minimum repayment — Making the minimum repayments will not pay off the total amount borrowed by the end of the interest-free period. You will need pay the balance before the interest-free period ends to avoid paying interest.
- Deferred payment — You don't make any payments until the end of the interest-free period.
Costs of an interest-free deal
Although you may not pay interest during the advertised period, there may be other costs to pay.
If you still have money owing after the interest-free period ends, you'll be charged interest. Interest rates can be as high as 26%.
Retailers also charge fees on interest-free deals, which may be added to the amount borrowed. Fees may include:
- establishment fees
- payment processing fees
- account keeping or service fees
- annual fees on the credit or store card
- late fees if you miss a payment
Work out how much you need to repay each month to avoid paying interest.
How to make the most of an interest-free deal
Know the fees, charges and interest rate
Before you sign up, read the Key Facts 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 put off making repayments
High interest rates kick in if you haven't repaid the balance before the interest-free period ends. Consider whether you can afford to make early repayments.
Don't use the card or account for other purchases
You may pay a high interest rate on any other purchases you make.
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 interest loans — If you're on a low income, these loans can help you pay for essential household items. You pay no interest or fees. You only repay what you borrow.
- 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 to make your loan more manageable because of financial hardship.
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 20% interest on the remaining balance, and will end up paying a lot more than the cost of the fridge.