36 Months Interest Free!
If you would prefer to listen to me read this blog post, please click on the play button.
I was asked this week what I thought about the interest free deals that are constantly on offer. You know the ones, they shout at you from the TV during the ad breaks and try to get their spiel across as QUICKLY and LOUDLY as possible before you have time to grab the remote and hit mute and come to the realisation that although the deal is inviting, you actually don’t need the stuff...
Apart from the picture I bought once on ‘lay by’, (which I actually paid off in full the day after I bought it) I have never bought anything on interest free terms. But for the purpose of research I thought I had better go shopping, for a new bed. Don’t worry, I’m not actually going to buy it but I had fun shopping nonetheless! No harm in looking. Money Memory - Dumb Mistake
A quick visit to the Harvey Norman* website and I’m in luck. What do you know, they have a HOT deal available:
At first glance this sounds like a great idea. I fancy a new bed and found this one with a cracking deal...
$5,999, what an absolute steal of a deal! Having never bought anything on credit I had the assumption that the headline was just what it said, that I pay no interest for 36 months. I assumed that if I made the regular monthly payments and had it all paid off by the end of the period then I have effectively “borrowed” money for free. That assumption is right and wrong.
They will tell me what my minimum monthly payments need to be but also have in the fine print “making only these payments will not reduce your balance to zero during promotional period”. So, I would actually need to pay MORE per month than they advise, otherwise when I get to the end of 36 months I will still have an amount remaining which they will then slap the following interest payments on. Currently 25.99% p.a. for Gem Visa and 29.95% p.a. for GE Creditline. That is a pretty hefty interest rate!
But, maybe I don’t need to worry too much because I can do some quick math and work out that $5,999 / 36 months = $166.64 per month. If I pay that I won’t incur ANY interest and I have effectively borrowed their money for FREE. I could even pay more each month if I wanted to and pay it off quicker and incur no interest.
But wait there’s more…
Just remember, when you are borrowing someone else’s money, NOTHING is free OK?
They said they would not charge me interest for 36 months but in the fine print they do mention there will be “additional fees and charges”. I need to factor in their Establishment Fee of $55 for processing the application. Next they will charge me an Annual Fee which is $52 for GEM Visa or $50 for GE Creditline. This gets charged at the end of each year that I have the account open and am still paying off my bed.
So, now my new bed is going to cost a little more to pay off because of the fees of approximately $200. I really should be paying about $173 a month to clear my debt by the end of 36 months.
One thing to add here is that if you have ever shopped at Harvey Norman, the price is NEVER the price. I love shopping there because I love to haggle. They know their bottom line and I do my darndest to find it. I picked up the phone and called a branch to see if I could haggle.
“Any wiggle room in price if I pay it off using your 36 months interest free offer” I asked?
“Let me see what we can do...” he offered.
The guy was good to deal with, knowledgeable and pleasant. They always are, that’s why I have bought many things from them over the years. I did OK with my haggling, but not with the price, the bed was already on sale and it was a HOT deal remember, so no budging on that. He would waive the delivery fee of $150 to my town, offered to have it assembled AND he would throw in a $189 mattress protector. Because it was “already so discounted” there was no movement on price…
This made me remember that about two years ago I bought a new bed for my daughter... which was already on sale... and I managed to a good discount on that. I was of course paying with CASH.
They can’t really discount the price when I am paying it off over time can they? If someone is offering to let me take home a $6,000 bed and pay it off s l o w l y WHILE I sleep on it for the next three years they are going to want their money back, and some. They can’t discount the bed because they need to cover the cost of lending me money.
I can see why interest free deals appeal to people, you can get what you want/need NOW. If your fridge breaks down and you need to replace it quickly, but don’t have the ready cash, an interest free offer could be a lifesaver. And if you went in with your eyes open and understood that you will pay more over time than you probably needed to well, knock yourself out. But if you needed a new fridge, new washer and even a new car, then those monthly payments are going to build up and bite you in the bank balance much quicker than you realise.
Personally I’m old school and would prefer to buy second hand or do without until I had the money set aside to do it with. Borrowing money to buy things used to be a sign of poverty; you didn’t have money to pay so had to go cap in hand and borrow some. Today borrowing money is so prevalent that it is seen as absolutely normal. The thought of still paying for something three years after I started using it and realising that its value had decreased possibly below what I still had to pay is just not for me.
So, my thoughts on interest free promotions? I don’t want to pay any more for an item than I need to and with these offers, because I lose the ability to haggle, plus they add their fees, I’m going to pay more than if I paid the total amount owed on the day. If I had to borrow to buy it, I probably don’t need it in the first place. When I found something I really needed I would save for it and go and spend an hour at Harvey Norman, when a sale was on, check out all my options, contemplate them while sitting in one of those great massage chairs and then haggle over the price, getting the best bang for my buck that I possibly could.
If you would like me to come shopping with you just let me know!
* I have not been paid for using Harvey Norman as an example in this post!