09 Apr 2021
Interest-free purchases are a good idea – but only if you have the ability to repay them before interest kicks in. Let's take a look at just what an interest-free purchase is, how they work, and alternatives that can save you stress and money.
Interest-free purchases are tempting due to their convenience and the ability to let you have your purchase sooner rather than later. They work by letting you take home your goods and pay them off over time, meaning that if you don't have money now, you can still at least have your purchase now.
However, interest-free doesn't mean that it's cost-free. If you aren't able to repay the balance during the interest-free period, you'll be charged a lot in interest and additional fees.
We'll use a hypothetical situation.
Let's say that you want to buy a new couch for the living room, but you don't exactly have the money on you right now. You can opt to make that couch an interest-free purchase. This is usually done by opening an interest-free purchase credit card in your name, with the cost of the couch immediately being charged to the card.
The credit card will have a period of time in which you can repay your purchase interest-free. In this situation, you have six months to repay it and either close the card, or keep it. If you haven't repaid the cost of the couch in six months, you then repay the couch plus interest.
The interest-free purchase credit card may also have an annual fee.
An interest-free purchase credit card isn't for everyone. You should look into other alternatives that can be more affordable.
Low-rate credit cards can be a better choice than interest-free purchase credit cards. If you're unable to repay the balance before the interest-free period is up, you'll likely pay quite high interest, but a low-rate credit card will always have a lower interest rate.
A personal loan may be more advantageous than a credit card, especially if you don't trust yourself with a credit card! A personal loan may also come with a lower interest rate than a regular credit card. At Sunshine Loans, we can offer you a small personal loan of up to $2,000, our fees are clearly stated, and you can apply online very quickly.
While they don't have the same perks as a credit card, a debit card allows you only to spend money from your savings, ensuring that you don't commit to purchases that are outside of your budget. Furthermore, debit cards come with either very low or no annual fees.
There are many buy now, pay later apps out there, such as Afterpay. These allow you to pay off your purchase in instalments interest-free, but the time you have to repay is usually quite short.