Interest-free trap ‘100 per cent a rip-off’
We've all been tempted by those "buy now, pay later" deals screamed at us through our TV sets - but one Sydney man has discovered first-hand how much of a rort they can be.
Fazla Chowdhery bought a $1500 lounge six years ago through an interest-free offer from a major Australian retailer.
At the time, the newlywed needed a lot of new household items and was attracted by the offer of smaller, monthly payments rather than one big lump sum.
It almost seemed too good to be true, and he quickly followed up that initial purchase with other buy now, pay later deals, including a laptop plus a Microsoft licence for $2000 on a 48-month interest-free term, an LCD TV for $870 for 18 months interest free, a $1093 air conditioner and a $1557 cooktop.
But he told news.com.au it was the worst mistake he could have made financially, as it ended up costing him hundreds of dollars in transaction fees he never understood to begin with.
He said as soon as he decided to purchase items interest free, the cost of the product would increase instantly by around $100, so he lost his negotiation power in the shop.
He was also slapped with an initial $25 fee to set up a card to make repayments for each separate item, followed by a monthly transaction fee of $4.95 per product, which eventually increased to $5.95 without warning or notification.
The 34-year-old was also charged a $0.95 transaction fee every time he made a payment on each item.
Mr Chowdhery said minimum repayments did not ensure a purchase was paid off within the interest-free period, and the interest charged afterwards could be as high as 29 per cent.
He has only recently paid off his debts and closed the accounts and is warning other Aussies to steer clear of these types of offers.
"It is 100 per cent a rip-off once you go interest free - it is more expensive in the long run," he said.
"My trust in (these offers) as a customer is now low because they charge a lot - interest free is not always interest free.
"Try to avoid them if you can because these offers are unfair."
David Wareing, the co-founder of GetReminded, an app that helps reduce household bills by reminding people when their contracts are due to expire, said buy now, pay later schemes were putting shoppers at risk of debt.
"There is no such thing as a loan that has zero cost upfront, so the use of the term 'interest-free' can often be misunderstood," he said.
"If you only pay the minimum monthly repayment you won't pay off your balance in full within the interest-free period, and that's when a higher than expected interest rate kicks in.
"The high-interest rate can also start as soon as you miss a payment and in some contracts could be backdated.
"There are also hidden account-keeping fees, so even when the deal states no deposit, no interest, nothing to pay for 36 months, there could be monthly account-keeping fees as well as payment-processing fees."
According to comparison site finder.com.au, there are many factors to consider before applying for an interest-free offer - no matter how tantalising it is.
Consumers are urged to remember that "all line of credit providers charge some form of fee", whether that be for cash withdrawals, missing repayments or each individual transaction.
The site warns that high interest rates can be applied after the interest-free period ends and minimum repayments are unlikely to repay the loan within the interest-free period.
It is also important to realise that interest-free products are still a type of loan - which means they will be recorded on your credit history.