Most people these days baulk at the idea of going into debt for anything, whereas others are hocked to the eyeballs in debt! Personally, I don’t like to buy what I can’t afford and prefer to save up for things that I want rather than go into mountainous debt and pay equally mountainous interest. I definitely never spend more than I earn.
One thing my hubby and I do like, however, is the interest-free loan. These are offered by most large electronics, furniture and housewares companies (amongst others) and if managed properly, can be a fantastic way of purchasing your bigger household items. It’s like a lay-by but you get to take home and enjoy your purchase instead of it sitting in the store until you’ve paid it off. The loans come as either deposit-free or minimal deposit, with either a monthly minimum payment or no payment until the end of the contract. The contract terms can vary from 12 months to up to five years. The beauty of them is that you don’t pay interest and you can keep the money in your own bank account for longer without paying extra.
They don’t come without their disadvantages though, and most people who take out these particular loans don’t realise the pitfalls and also don’t use them to their advantage – when this happens, they end up in a world of hurt financially! I would like to share with you a few tips on how to get the most out of these types of loans and how you can get them to work for you (and this is all from experience!!)
1. Do your maths – The first thing you need to do is work out exactly what you can comfortably spend every month. Bear that in mind when you are out shopping for your TV or lounge or whatever it is you want to buy. Be prepared to haggle a little to get a good price. If you have a good household budget you should know exactly what you are willing to be able to spend on monthly repayments (e.g. My hubby and I know we can comfortably part with $100 – $150 a month, so we budget our purchases around that and NEVER go over).
2. Prioritise – If you have a few purchases in mind, sit down before you go out shopping and decide what you need to purchase in order of priority (we always start with “needs” first, then “wants” – e.g. You might need a new fridge as the old one is broken, but you might want a flat screen TV even though your old one is still working……go for the fridge!).
3. Know your products – Research your products beforehand so you have an idea of what you are likely to spend.
4. Read the fine print and ask questions – Once you have decided on your purchases at the store, make sure you read all the fine print and know exactly what the contract is asking of you before signing anything. If you need more information, ask the sales assistant or whoever is preparing the loan. Make sure you understand when the loan starts and ends and check when the first payment is due. Ask if there are any fees or penalties.
5. Always pay on time – If you choose a loan which has minimum monthly repayments, always pay them before or on the due date. If there is a direct debit facility available, use it! Don’t miss payments as this could null and void the interest free period. I f you choose a loan with no payments until the end of the contract, make monthly repayments anyway. This will stop you from having a big panic at the end of the contract, and will stop you from spending that money on other things.
6. Pay a little more off – If you have extra cash available (say at tax refund time) pay extra off the loan, or better still, aim to pay the loan out before the interest free period ends. Most interest free lenders will not penalise you for early pay out of the loan.
7. Always pay the loan off before the interest free period ends; otherwise you’ll be up for phenomenal interest payments on top of your loan repayments. OUCH!
8. If you can’t pay, let the company know – Don’t just stop your repayments without calling the loan provider – they can help!
9. Only have one loan at a time – Don’t feel tempted to get more than one interest free loan at a time – if you have more than one it can get confusing and you could end up way in over your head financially.
This is the best advice I can give on interest free loans. There’s many of them out there, all with different lurks and perks. You need to research and not go into them blindly as they can turn nasty if not managed properly (and the lenders want you to default, remember that!) As with all loans, you must have a sound household budget before entering into these types of loans, and if you do, then you can work the loan to your advantage every time!