Interest free offers are great for people looking to buy a product without paying up front. Over the holidays, you might be able to get the gift you could otherwise not afford. This holiday miracle, however, may not be the blessing it sounds like. The terms and conditions of the agreement may include fees that you initially overlooked. Or maybe you are not paying off the amount as fast as you thought. This article will walk you through how interest free offers work and what to look out. If you are a business owner looking to introduce interest free offers to your customers, this article will help you on where to start.
Interest free offers
Interest free offers are agreements to purchase a product without having to pay upfront. Instead, usually a credit or store card is used. You then make instalments during the interest free period to pay for the product. The interest free period, however, will usually only last for a limited time. Afterwards, you will have to continually pay interest on the remaining amount until it is paid off. It seems fairly simple but there are several factors you want to consider.
Know the terms
When you sign up for the agreement, there will be a key facts sheet provided to you. If not, request one immediately. This has important information you need to consider before agreeing to the contract. The key information to look out for are:
- When the interest free period ends
- How high the interest rate will be on any remaning amount
- If there are any additional fees or charges
How much to pay each instalment
Often, there will be a minimum repayment amount needed to be paid regularly. Be careful not to bite off more credit than you can chew. The minimum amount may sound affordable. However, you will more than likely need to pay more than the minimum to pay off the debt in time. If there is no minimum repayment amount, make sure to stay on top of your payments. MoneySmart offers interest free calculators that will determine how much you need to pay each instalment.
What if you miss a payment?
Most of the agreements will have late fees stated in their contracts. If you miss a payment, you may find yourself subject to one of those fees. However, if you are continually struggling to make the payments, contact the lender. They may be able to provide financial hardship assistance. Otherwise, there are financial counsellors who can offer free advice.
Interest free for businesses
Interest free agreements can work well for both customers and businesses. For businesses thinking of introducing interest free offers, it can be confusing where to start.
Rather than a credit card method, a loan agreement may be what you are looking for. Lawpath offers customisable loan agreements that can be altered to your needs. Keep in mind, there are some legal requirements you need to meet before lending money, such as acquiring a license from ASIC. Our guide on how to create a loan agreement will explain the requirements in further detail.
Chasing down the payments can be challenging too. You want to be able to receive payments for your goods but keep a good rapport with customers. For more information, check out our guide on the steps to take to collect your small business debts.
Conclusion
Even with additional fees or charges, interest free can be beneficial to customers. Before agreeing to anything, know the terms of the contract. From there you can assess whether the agreement is right for you. Keep track of how long you have left to pay off the debt and how much you need to pay each month. The minimum may be affordable but be prepared to pay past the interest free period. If you are beginning to struggle with repayments, do not stay quiet about it. Contact your lender to see if they can make adjustments that will help.
