12% of Kiwis are paying interest on ‘free’ loans
When you get an interest-free loan, it’s always interest-free, right? Wait a second. It’s only interest-free if you toe the line with the terms and conditions of the loan. And research we commissioned has found nearly half (48%) of Kiwis have made the most of deferred interest deals to purchase items with what can be a ‘free’ loan, but even the best intentions of paying off the loan in time can catch some consumers out.
While most Kiwis paid off the loan within the interest free period, 12% did not complete the payments and paid interest on their purchase, the research shows.
For those 12%, almost half (47%) took more than a year to pay it back in full and ended up paying a significantly higher price for the item. And according to our analysis*, 18% of people with a personal loan have been overdue on monthly repayments at least once in the past 12 months.
Interest rates charged on store cards can be as high as 26% – higher than credit cards and personal loans from banks.
CreditSimple.co.nz spokesperson Hazel Phillips says paying off a hire-purchase interest-free deal on time is doubly positive: you avoid having to pay interest and it can help improve your credit score.
“Young people setting up their first house or flat often lean heavily on credit cards and interest-free deals to buy furniture and appliances. Our own data shows that missing a payment on a finance deal is one of the biggest factors impacting your credit score,” she says.
“A good credit score is 500 or more on a scale of 0 to 1,000.
“Falling behind in regular payments soon starts to affect your credit score. Some people get into the habit of paying as late as they can every time, but that’s not a good strategy. The reality is with banks now reporting ‘positive’ credit behaviour such as paying on time, late payers stand out.
“You may earn a few cents extra interest by delaying bill payments. But it’s just not worth it if it’s wrecking your credit score, as it can affect your ability to get credit down the track.”
*Drawn from data held by illion, Credit Simple’s parent company.
This research was conducted for Credit Simple by Perceptive Research in July 2017 surveying a minimum of 1,000 New Zealanders online using nationwide sampling framework, the results are then weighted to Statistics New Zealand census gender, age and location data.
Credit Simple gives all Kiwis free access to their credit score, as well as their detailed credit report. See how your credit score compares by age, gender and community and gain valuable insights into what it all means.All stories by: Credit Simple