Interest free offers from retailers

[Tonibell]

Just wondering what should be considered when looking at interest free periods from retailers.

We are looking at getting an Ikea kitchen this month while they have their voucher offer on.

If the purchase is over $5K you can also get 48 months interest free.

Is it worth taking up the interest free offer - or is it just a gimmick ?

Will it potentially have an adverse impact on future investment borrowing ?

Any feedback would be appreciated.

 

[neK]

For stores where you can negotiate on price (eg Harvey Norman), the "interest free" is simply capitalised into the price. Upfront price is always better.

 

[Redom]

Just wondering what should be considered when looking at interest free periods from retailers.

We are looking at getting an Ikea kitchen this month while they have their voucher offer on.

If the purchase is over $5K you can also get 48 months interest free.

Is it worth taking up the interest free offer - or is it just a gimmick ?

Will it potentially have an adverse impact on future investment borrowing ?

Any feedback would be appreciated.

Yes it will damage your future borrowing in two ways:
1. Serviceability. 5k over two years is an increase in expenses of 2.5k per year. My rough calcs are thats about a 30000 decrease to your borrowing power (i posted guidelines earlier).
2. Credit enquiry - consumer debt enquiries dont go down well in credit scoring. So if u plan on investing over the next couple years, this doesn't help.

In saying the above, depending on your goals, it could do very little damage (ie your serviceability may not be an issue or you dont plan on investing much in the next 48 mnths).

Cheers,
Redom

 

[Peter_Tersteeg]

It's still a liability and despite being interest free, there are still repayments to be made. It will impact your future borrowing capacity.

Make sure you read the fine print. There can be some fairly nasty stuff in these contracts.

This kind of debt is the junk food of the finance industry. It's not good for you, it gets more people into trouble than any other sort of debt. Every person I've met that's had serious credit problems and can't be helped has had this type of debt. My feeling is that if need to borrow money under these terms, you probably shouldn't be buying it.

 

[marg4000]

You MUST ensure you pay things off before the interest free period expires otherwise the interest rate is very high.

Do your own sums.
Don't rely on any monthly payment the retailer may suggest as it can be insufficient to repay the debt in time.
Give yourself a buffer. If 48 months, divide the amount owing to give your payments so that the debt is cleared in 42 months.
Ensure there is no penalty for early repayment.

Works well IF you are disciplined (and only take on one at a time).
Marg

 

[Tonibell]

Thank you for the feedback.

We definitely do not need to borrow this way - just wondered whether it was nice added extra or not.

From the comments given - it is clearly not something we would consider.

It looks like it is for those already headed down that slippery slope.

 

[marg4000]

Thank you for the feedback.

It looks like it is for those already headed down that slippery slope.

Not necessarily.

Friend who is an accountant uses it if he can't negotiate a lower price using cash or card.
Prefers to leave the money in the offset account. Every little bit helps.
Always pays well in time.
But, as I said, it only works if you are disciplined.
Marg.

 

[Joostoz]

Not necessarily.

Friend who is an accountant uses it if he can't negotiate a lower price using cash or card.
Prefers to leave the money in the offset account. Every little bit helps.
Always pays well in time.
But, as I said, it only works if you are disciplined.
Marg.

We went down this road (for an Ikea kitchen as well) when our bank didn't want to lend us any more and we needed to finish our renovation. We financed at 95% + LMI, and had a hefty personal loan on top for the reno. This way, we made sure we could do the bathroom while the house was gutted, so hopefully it ended up better in the long run.

Make sure serviceability is not an issue (it isn't in our case), and make sure you use the financed amount in one go. We didn't do this, and since our second purchase on the card was less than 5k, we only received 6 months interest free on the second amount. Lombards then decided that any amounts paid by us were reducing the older outstanding amount first, meaning that if I had not contacted them, the lower, newer purchase amount would stay on the card and only be paid off after the kitchen was paid off. The projected interest on an additional A$ 700 was around 1k from memory.

 

[Tonibell]

Not necessarily.

Friend who is an accountant uses it if he can't negotiate a lower price using cash or card.
Prefers to leave the money in the offset account. Every little bit helps.
Always pays well in time.
But, as I said, it only works if you are disciplined.
Marg.

That was my thoughts initially and why it got my interest.

I'm now thinking the potential downsides are not worth risking for what is only a small benefit (in the scheme of things).

J's example of averting $1K interest on a $700 purchase is a bit scary.

 

[S.T]

They sometimes have an 'account admin' monthly fee also. Which can sometimes negate the savings. Always a catch, so read fully before opting in.

 

[Joostoz]

That was my thoughts initially and why it got my interest.

I'm now thinking the potential downsides are not worth risking for what is only a small benefit (in the scheme of things).

J's example of averting $1K interest on a $700 purchase is a bit scary.

I got in touch with them, and our monthly repayments of 350 are now reducing the newer balance first, meaning that we will have paid of the 700 in two months, and still have 18 months interest free on the kitchen. Took one call. Should be fixed now!

 

[aussieB]

Not necessarily.

Friend who is an accountant uses it if he can't negotiate a lower price using cash or card.
Prefers to leave the money in the offset account. Every little bit helps.
Always pays well in time.
But, as I said, it only works if you are disciplined.
Marg.

They sometimes have an 'account admin' monthly fee also. Which can sometimes negate the savings. Always a catch, so read fully before opting in.

Exactly. Went white good shopping the past boxing day and wanted to opt for the "easy interest free EMI" option at JB HIFI - because I could keep the $3.5k in a savings/offset and pay off easily every month. Turns out the HSBC application fee was 30 bucks + a card fee of 60 bucks and some other charges just about equated to the amount earned in interest from 3.5k in a savings/offset account. Bummer. Just paid for the goods in full.