Nearly half of Kiwis have made the most of deferred interest deals to purchase items with what could be called a “free” loan, but consumers are getting caught out by not repaying the loan in time, new research from CreditSimple.co.nz has found.
While most Kiwis paid off the loan within the interest free period, 12% did not complete the payments in time and paid interest on their purchase. Almost half of those 12%, took more than a year to pay back in full and ended up paying a significantly higher price for the item.
According to CreditSimple.co.nz analysis, 18% of people with a personal loan were 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, the research showed.
CreditSimple.co.nz spokesperson Hazel Phillips said paying off a hire-purchase interest-free deal on time is doubly positive: borrowers avoid having to pay interest and it can help improve their 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.”
Phillips said 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 someone’s credit score – a high score means better deals from banks, insurance and utility companies, she said.
“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, ” she said.
CreditSimple.co.nz said most New Zealanders have a credit score between 400 and 600.