Making interest free periods work for you

As much as we’d like to save every cent that we earn, this isn’t the case. Sometimes you just want a new pair of shoes and sometimes your fridge has broken down, you lost your ice cream supply so need to replace it ASAP. You might be setting up your new home or preparing for a baby. You could be going on that long awaited holiday to Africa. Here’s a few things you should consider when it comes to interest free periods.

Juggling expenses and saving

Making purchases, whether big or small can make a dent in your account balance. Taking advantage of 0% p.a. interest offers for any period of time can make that dent easier to handle and help you juggle your expenses, by paying it off over time. That way, you can still handle every day expenses and keep that savings plan on track.

Who’s offering?

There’s a bunch of different providers offering Interest Free deals that all slightly differ. It’s important to consider which is best for your current situation.

In store or online, you might take advantage of AfterPay, zipPay or something similar. These are low hassle and low fee options, particularly good for spontaneous purchases (like those shoes we mentioned). But you are restricted by various factors like the purchase amount, repayment period and the retailer.

Some retailers offer interest free periods for a number of months too. You can make your purchase in store, take it home and pay it off over that period without interest. This is handy for more expensive purchases such as that broken fridge! Again, you are restricted to that retailer which means you might not be getting the best deal in town.

There are also some credit cards, or credit card offers that might allow you to pay no purchase interest for a period of time. This generally happens in two ways. Firstly, some credit cards offer standard interest free days on purchases. That means that from the beginning of your statement period you have up to 55 days to pay back purchases you make on your card before they start to accrue interest. Interest free days only apply where you pay the full statement balance on your credit card by the due date each month.

Alternatively, you might find an offer for a longer introductory 0% p.a. interest period. These periods could be up to 12 months or longer. An offer such as this allows you the freedom to make purchases at any retailer up to your credit limit. This could be what you need for that trip to Africa or setting up your new home.

The repayments

Each option has different repayment structures and durations, and each one might work for you differently depending on your situation.

For smaller buys, you probably won’t need 12 months to pay it off. But when it comes to bigger things like holidays, having a longer period to pay it off might make it easier for you to manage your budget.

Options like Afterpay and zipPay are often great for those smaller buys. If you’re a spontaneous spender, make sure you don’t get bogged down with too many of these repayments coming out at different times. If payments are coming out on different days, you’ll need to make sure you have the funds in your account so you don’t get stung with fees. 

" When it comes to bigger things like holidays, having a longer period to pay it off might make it easier for you to manage your budget."

Using the instore credit options can be a great way to pay of big ticket items over a longer period of time. Setting up automatic payments or direct debits can help to make sure you stay on track and pay it off in full over that period. If you know that you won’t be paying off the full amount in that interest free period, then check the interest rate that you roll on to afterwards.

Using a credit card 0% p.a. interest free period for a long period like 12 months can be handy for using at any retailer at any time. It also means that you won’t have multiple repayments for different items due at different times. The repayments are all rolled in to one! But, you’ll need to calculate those repayments to take advantage of that interest free period and pay that amount when it’s due.

Payments will be due every month when you receive your statement, and your statement will advise you of your minimum required payments. However, if you only make the minimum repayment every month, you won’t pay off your items during that 0% p.a. period. So calculate your repayments and pay them every month to save on interest!

The small print

In the small print you will find out all the information that you need to know. You’ll be able to find out the fees attached to your agreement, such as annual fees, late fees or admin fees. Understanding what happens if your item is faulty but you still owe money on it is key too.

It pays to be smart about what you’re buying and when you do so.

For rolling credit options, like credit cards, any introductory interest period is fixed. So, if you make a purchase on day one of that offer then you will receive that entire period interest free. If you make a purchase in the last week, then you’ll only benefit from one week of 0% p.a. interest. It pays to be smart about what you’re buying and when you do so. 

What if you don’t pay it down?

Like all great TV shows, all interest free periods come to an end. Whether that’s a credit card offer, a direct retailer or an option like Afterpay and zipPay.

If you haven’t met your repayments over the required period and find yourself owing balance at the end, you could roll on to a high interest rate automatically or be charged a fee. These interest rates can vary, and you might find yourself paying up to 30% interest on your remaining balance.

Make sure you shop around and look at the rolling interest rate so you won’t get stung too badly later if you carry your balance over at the end of the repayment period.

Preparing for the worst

No matter how great, or not so great you might be with finances it’s important to be prepared for when things go wrong. Things don’t always go as planned - an emergency flight home, a broken down car or losing your job are all situations we don’t hope for, but should really be prepared for. You want to feel comfortable that you can still cover your outgoing expenses when there are unexpected expenses, or a lack of income.

Read the small print when you take out any credit option. Does the offer that you choose allow a grace period under certain circumstances? Are you covered by any type of insurance or consumer protection? All credit institutions have an obligation to help you during genuine financial hardship, so the earlier that you let them know about your situation, the better.

Smart spending is a key part of saving successfully. When you’re making purchases, whether big or small think about your options. If you’re looking to avoid the big dent in your account balance, using interest free offers can play in your favour.

Things you should know

The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48123123124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.