Interest-free financing is a handy way to get what you want when you don’t have the cash. Find out here how it works.
Businesses love when people buy their products and people generally enjoy buying new things. The only hindrance to this happy relationship is the money that’s required to make the purchase.
Interest-free financing is a new shopping method that can benefit both businesses and shoppers by letting you pay off a purchase in instalments. This type of finance differs from traditional loans as the payments are interest-free.
How does interest-free finance work?
Interest-free finance works in much the same way as the interest-free deals major retailers have offered for years. The only difference is that you are getting finance from a third-party provider that is available at a range of different stores. In a way, it works in a similar way to layby, but you receive your purchase upfront. Here’s how it works:
- Sign up with a provider. Sign up either online or in store. You can usually get on-the-spot approval.
- Make your purchase. Some providers only work with partnered merchants, whereas others are accepted anywhere that takes credit card.
- Pay back your loan. Repayments are usually made in instalments, such as four instalments over a year, or monthly like a credit card.
Interest-free: What’s the catch?
By offering interest-free financing, businesses have taken away one of the biggest barriers to closing a sale. It allows shoppers to spend money they don’t have. That’s the main catch, it encourages spontaneous spending and bad credit habits.
As well as this, there are fees and interest charges for late payments. “Interest-free” really means an interest-free period, after which you will have to pay a high interest rate. The minimum repayments may or may not be enough to pay back your loan before the interest-free period is up. It’s up to you to ensure you pay the loan back fully before that point.
There are a number of fees associated with using some interest-free finance products. Most will charge you if you make cash withdrawals or don’t make repayments on time.
Which providers offer interest-free finance?
Broadly, there are two types of interest-free finance services available:
|Provider||How it works||Costs||More|
|Openpay||Select Openpay at the checkout online or in-store. Repay in fortnightly instalments.||Read the review|
|Afterpay||Select Afterpay at the checkout online or in-store. Repay in four interest-free instalments.||Read the review|
|Certegy Ezi-Pay||Create an account online or at the checkout and receive your credit approval. Repay in interest-free fortnightly instalments.||Read the review|
|zipMoney||Select zipMoney at the checkout and wait for approval. Repay your purchase interest-free over three, six or 12 months. Outstanding balances after this period will incur interest.||Read the review|
|zipPay||Create an account with zipPay and then spend up to your credit limit at participating merchants. Repay fee-free for 60 days, with outstanding balances after this incurring a $5 monthly fee. Minimum payment of $40 per month.||Read the review|
|Lombard||Apply online or in-store with participating merchants. There is an interest-free term but you can take longer to repay.||Compare|
|CreditLine||Shop at participating merchants for an interest-free promotional period. Your choice of three 0% interest plans.||Read the review|
|Once||Choose from two cards that offer various interest-free plans, including 0% for six months on purchases over $250 and 0% for 48 months at participating retailers.||Compare|
What features do these interest-free finance providers offer?
Each provider offers the following features with their interest-free finance service:
- Loan term. Loans terms vary greatly depending on the provider and the retailer. For small-value purchases, it might be only six months, but it could be up to three years for more expensive transactions.
- Repayment frequency. Again, it varies depending on the provider. The line of credit products generally require monthly repayments, whereas merchant payment options are commonly paid back in four instalments.
- Convenience. All interest-free finance products can be applied for and approved in minutes at the point of sale or online.
- Paperless. The application process and loan management is done online, so you won’t need to physically print or sign anything.
- Wide acceptance. Line of credit debit cards are accepted anywhere normal credit cards are accepted. The merchant payment option is only available at partner merchants. However, there is a large and growing number of businesses offering this payment option.
- Ongoing. Unlike a loan, the line of credit products do not expire once you pay off your debt. You can keep the card and use it again when required.
What should I consider before I apply?
While interest-free finance may be enticing and suitable in some cases, there are a number of factors to consider before using it:
- Fees. All line of credit providers charge some form of fee. Most fees are associated with cash withdrawals and missing repayments. Some charge a fee for every single transaction.
- Interest. Interest is charged after the interest-free period. Interest rates can be high, in some instances up to 29% p.a.
- Minimum repayments. The minimum repayments are unlikely to repay the loan within the interest-free period. If you do not make additional repayments you will be charged interest.
- Credit record entry. Interest-free products are still a type of loan and are recorded on your credit history as such. Be cautious of over using, or not repaying these products.
It's important to compare a range of interest free offers before signing up. You can also consider a credit card with a 0% p.a introductory interest rate offer.