Interest-free deals

Deal or no deal

Many stores offer interest-free deals that let you take goods home before you pay for them. But interest-free doesn't mean cost-free - there are fees and charges you should know about.

How interest-free deals work

There are two ways you can pay for interest-free deals:

  • Payment by instalments - you make regular payments each month.
  • Buy now, pay later - you don't make any payments until the end of the interest-free period.

Before you get an interest-free deal you need to know that:

  • If you only pay the minimum monthly repayment you won't pay off your balance in full within the interest-free period.
  • The interest rate you'll be charged if you miss a payment or haven't paid off the balance by the end of the interest-free period can be as high as 29%, much higher than most credit cards.

Work out how much your repayments should be to avoid paying interest.

Interest-free deal calculator

Case study: Ron and Maya compare interest-free deals

Young couple discussing interest-free deals Ron and Maya both got interest-free deals but for different amounts.

The interest-free deal worked out well for Ron as he increased his repayments to pay off the deal in time.

But Maya just left her repayments at the minimum amount and ended up being charged 29% interest and still owed a lot.

Details Ron's deal Maya's deal
Purchase $2,000 couch $1,500 fridge
Interest-free period 12 months 12 months
Repayments $200 monthly Minimum repayment
After 12 months Fully paid off Paying 29% interest on a $1000 balance
Outcome Happy with the deal Stressed with more debt

How to make the most of an interest-free deal

Here are some tips to make the most of an interest-free deal:

  • Work out your repayments - Only use an interest-free deal if the contract allows you to pay more than the minimum monthly amount, check the fine print. Use our interest-free deal calculator to work out how much to pay each month to avoid paying interest. If you have multiple deals, check with your provider where your repayments are being allocated.
  • If you can't afford the repayments don't take the deal - Sometimes people think if they can just make the minimum repayment now, their situation will get better in the future and they will increase their repayments later. This can result in more debt and more stress.
  • Multiple deals - If you have more than one interest-free deal on your account, find out how additional repayments are allocated to make sure you have each one paid off within the interest-free period.
  • Don't use the credit card - You may be tempted to use the credit card that comes with the deal but it will probably have a high interest rate, your purchases may not be interest-free and it may be difficult to work out which balance is getting paid off first.
  • Check the fees and charges - Even when an ad says 'no deposit, no interest, nothing to pay', you may still have to pay fees, such as an application fee, monthly account fees and payment processing fees. These will be listed in your credit contract.
  • Review your account regularly - When you receive your statement check the expiry date on your interest-free deal and make sure you are paying enough to have it paid off completely within the interest-free period.

Video: Andrew's tips on interest-free deals

Video tips on interest-free deals

Andrew from ASIC's MoneySmart team talks about how to pay more than the minimum repayment so you can avoid paying interest.

Transcript: Andrew's tips on interest-free deals

Buy now, pay later payment services

Payment services such as Afterpay or zipPay are now available when you shop online or in store. You can use these services to shop now and pay later for a short time, either until you receive your goods and are happy with them, or by paying by instalments (often fortnightly). These services are offered by separate companies, not the retailer.

You may not need to apply for this service, it could simply be an option at the checkout if the online retailer offers it. You will need to provide your credit or debit card details the first time you use these services so your payments can be deducted, and you may have to pay the first instalment up front.

No interest is charged but the cost will add up if you can't make the repayments on time. There's usually a late fee every time you miss, or are late with a scheduled repayment and some services also have monthly account keeping fees or payment processing fees. Always check the terms and conditions before you sign up as they can be different for each payment service.

Before you use this payment option, also make sure the fortnightly payments are affordable and in your budget. See how to do a budget for tips on preparing and using a budget. 

Interest-free travel deals

Some travel companies will encourage you to book the 'trip of a lifetime', even if you can't afford it, by offering interest-free travel deals.

There are two types of interest-free travel deals:

Pay before you holiday

You book your trip in advance, locking in fares and other costs and then pay it off with regular monthly payments before you travel. You will pay an up-front fee and if you miss a repayment your trip could be cancelled and any payments you have made used to pay cancellation fees before you are refunded the balance.

Holiday now, pay later

With these deals you start making regular repayments now and continue to pay off the trip after you get home. There is an interest-free period but when that finishes you'll be charged high interest on the balance. Use our interest-free deal calculator to work out how much you would need to pay each month to pay the trip off before you leave home. If you can't afford the repayments, delay your trip until you have saved enough to afford it, or holiday somewhere cheaper.

No interest ever deals

With no interest ever deals the repayments are high enough to repay the debt over the term of the loan. These deals usually have costly establishment fees, payment processing fees and monthly account fees.

While you won't pay interest on debt, you can be charged high default fees if you don't make all your repayments on time.

Check your other options

Don't feel pressured to sign up to an interest-free deal by a pushy salesperson or a 'limited time' offer. Consider other options, such as:

  • Using savings instead - our savings goals calculator will help you work out how much you need to save and our TrackMyGoals app will help keep you on track
  • Get a no or low interest loan - these schemes help lower income earners get access to funds for essential items
  • Put it on lay-by - you won't be able to take the item home straight away but you won't be stuck paying interest either

Interest-free deals can be great if you pay them off in the interest-free period. But if you don't, you'll be slugged with extra interest and fees.

Related links

Last updated: 11 Oct 2017