Interest-free overdrafts while you’re a student might be tempting, but new research we commissioned shows 66 per cent of tertiary students aren’t paying back their interest-free overdrafts before leaving university, and an alarming nine per cent took more than two years to pay their overdraft back now. 

Students are going into university knowing they will likely be faced with a large ‘interest-free’ IRD bill at the end of it. However, the research suggests this ‘interest-free’ appeal is making student finance deals tempting with nearly a third (31 per cent) of tertiary students making use of interest-free overdrafts. 

CreditSimple.co.nz spokesperson Hazel Phillips says banks offer some great deals to students, however students need to change their mindset and use these deals to their advantage. If a financial plan is put in place, incurring interest can be avoided.

“Interest-free finance deals are a perfect way for students to start building their credit report. If regular payments are made before interest starts incurring, it will be positively reflected on a student’s credit score and provide a foundation for the future,” Hazel says. 

Students need to have a financial plan in place when applying for interest-free overdrafts to avoid being stung with high-interest payments they can’t afford.

“It’s important students are using interest-free deals correctly and that they put payment plans in place to ensure the debt is paid before they leave university. When interest starts being added to loans, it makes it harder to keep up with minimum payments and a missed or late payment can damage your credit score.” 

Five top tips for managing interest-free overdrafts and maintaining a healthy credit score:

1. Make a payment plan to ensure the debt can be paid off in full before agreeing to the terms
2. Set up weekly automatic payments
3. Review your loan every month and ensure you’re on track to clearing the debt
4. Make additional payments to help clear the debt
5. Regularly check your credit score via CreditSimple.co.nz to make sure your payments are up to date and you don’t have any credit defaults

Most banks in New Zealand offer special rates to students, however when students leave university remaining debt can occur high interest.

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