The Pitfalls Interest-Free Credit Card Deals

The slogan ‘interest-free’ appears to be emblazoned across every shop window and advert advertising everything from credit cards to electrical goods. With household budgets often stretched to the limit, these offers can seem very tempting. However, these offers of interest-free credit do come with serious pitfalls if agreements aren’t adhered to.

Before entering into any of these agreements, lets consider the benefits and drawbacks to the interest-free loan and credit.

Many of the ‘buy now pay later’ deals on offer from retailers can actually work very well for consumers if the agreement is followed to the letter. However, one should be aware of the pitfalls.

As with most of these deals you will be given a set period, six months for example, in which to repay the debt. If this is achieved then you should have no problems.

However, if you fail to repay the debt in the agreed time period you will be liable to pay interest, which can carry an APR of up to 30%, on the debt. If this happens you could find yourself landed with a debt far greater than the original.

High Charges

Added to this, the interest at these extortionate rates will also be backdated to when you took out the original agreement, which translates to the item eventually costing you a small fortune.

It also pays dividends to scrutinize deals offered with 0% interest in case the trader has marked up the goods and you end up paying more than you would have done had you shopped elsewhere. This is often a tactic employed by car dealers who often mark up the price of their vehicles before embarking on sale.

If you decide to enter into one of these agreements, it makes sense to keep records of all your repayments so you have proof that all payments have been made on time. These records will come in useful if a trader claims you missed a payment since being unable to prove otherwise could cost you a substantial amount of money and mean an ugly dispute into the bargain.

Pay particular attention to credit card deals as failure to clear balance before any offers expire could leave you with a mountain of debt. For example, balance transfers with offers of 0% interest can save you hundreds of pounds of interest but can be painful if you the balance is not cleared before the offer expires.

Alisdair Milton
17/4/06

 

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