It’s true when they say nothing is free, so when you hear offers of interest free periods there is almost always a catch. That’s not to say you can’t take advantage of this free money while putting your money to work, follow these tips and you can start smashing the savings.
1. Read the fine print
I know it sounds obvious but written in to the fine print may be hidden fees and charges like monthly fees or an establishment fee and this replaces the interest charge. You want to make sure these fees, if there are any are minimal to make the interest free period a benefit to you so be sure to read the fine print before you sign anything.
2. Make the full repayments
A lot of the time there is a minimal repayment or no repayment at all, this means you make the minimal repayment with a balloon amount left owing right when the interest rate goes from 0% to a huge interest rate. To avoid paying massive interest work out what the repayments need to be to have the loan repaid at the end of the term and make those payments a separate account (minus any minimum repayments you may need to make) then right before the interest free term expires transfer the funds to repay the loan in total.
Example, I borrow $5000 with a 24 months interest free period:
5000 / 24 = 208.333 therefore I need to be setting aside at least $209 each month to ensure I have the full funds to repay the loan regardless of what the minimum repayment is.
3. Make the funds work for you
You will need to make the repayments into an account while you are saving it up so I would suggest putting the funds into an offset loan account for your home loan or personal loan. This will mean you are saving money on interest and putting your money to work for you while doing so. Do not store the funds on a Credit card as this will mean you are paying a cash advance fee when the time comes to withdraw the funds to repay the interest free debit.
4. Keep going with the repayments
The longer you are making the repayments the less you will miss the funds so why stop just because the loan has been repaid and closed. If you continue making the repayments it will create a nice little savings plan for you down the track.
REMEMBER, even though it’s interest free it is still a loan, you will need to account for it when you are applying for any other debit and most importantly make sure you are on time with any payments so you have a good credit history.
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