The pros and cons of INTEREST FREE

When I first moved out of home, I decked out my new flat by taking up a 48-month interest-free finance plan.

I thought it was a great option. I bought everything I needed, and the repayments were manageable.

When the interest-free period ended, however, I hadn’t finished paying it off, and was hit with a 29 per cent interest rate. It took years to clear the debt and cost me far more than if I’d just taken out a lower interest personal loan over a fixed term.

Financial regulations have changed a lot since then, but with the rise of Buy Now Pay Later (BNPL) providers, banks are feeling the pressure to compete.

As a result, there are a few interest-free credit cards being offered to lure customers back to the banks.

Switching to an interestfree credit card sounds like a no-brainer, but be sure you weigh up the pros and cons.

THE GOOD BITS ABOUT INTEREST FREE CARDS

• No interest

This is the main drawcard, considering the average credit card balance accruing interest is $1367 and the average interest rate is 19.94 per cent.

• One account

An interest-free card can be used anywhere with EFTPOS facilities, meaning you have one account and one monthly repayment.

With BNPL, you can only buy from retailers who sign up to each provider. ‘I have four different BNPL accounts and it’s hard to keep track of my repayments,’ my friend Belinda told me.

• No late payment fee

Last month, I realised my credit card repayment was due the next day, so I quickly made a BPAY transfer.

Unfortunately, it took two days to hit the account and I was charged a $30 late fee.

Interest-free cards don’t usually have late fees.

THE NOT SO GOOD BITS

• Monthly fees

Interest-free credit cards charge a monthly fee. If you don’t use the card, or pay off the balance each month, the fee will usually be waived.

If you make only the minimum payment, be sure to work out what costs more long term – paying interest or paying the monthly fee.

• Restrictions

Interest-free cards usually have lower credit limits, some don’t allow cash advances and some are digital cards only.

There may be restrictions on additional cardholders, and some don’t include insurance.

Always read the fine print before making any credit commitment.