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How to buy now and pay later with credit cards

Feb 19th, 2009 12:57
alex martin, sayal khan, John Martin, john molly, http://www.credit-card-offers.com.au/index.php


Top Buy now pay later explained
You've probably seen the TV and newspaper ads for "buy now, pay later"
purchases in stores such as Harvey Norman, Freedom Furniture and Forty
Winks, to name just a few. The "interest-free" period generally ranges
from six to 24 months, so it can be a good way to buy big-ticket items,
provided you're disciplined.
Although you apply for an interest-free loan through retailers such as
Domayne, Harvey Norman or Freedom, it will be linked to a finance
company  more than likely GE Money, which runs both the Buyer's Edge
and CreditLine programs in Australia. HSBC introduced a similar offering
earlier this year.
These interest-free offers may also be linked to store credit cards such
as the Coles Myer Source card, the GE Money GO MasterCard or the David
Jones card. The David Jones card is a traditional store card in that it
can only be used at David Jones.
The Coles Myer Source card and GO MasterCard is what GE Money calls a
"dual card", explains Skander Malcolm, managing director of card
solutions at GE Money. It has the features of a store card in that
cardholders get access to special promotions within certain stores, but
the card can be used anywhere.
There are generally two types of offers you'll come across. The first is
interest-free with instalments, which requires you to make monthly
payments over the specified period.
The second is a buy now, pay later arrangement where you don't have to
pay the full amount until the promotion period ends. But you are
required to make minimum monthly repayments and pay an ongoing fee of
about $3 a month. You can make higher repayments if you want to.
Principal solicitor with the Consumer Credit Legal Centre NSW, Katherine
Lane, labels this as misleading because although it says buy now, pay
later, you do have to make payments in the form of the account-keeping
fee and minimum monthly payments over the promotional period.
More than the minimum
HSBC's product is different in that you get 12 months interest free and
after that it becomes a personal loan, and the rate is 17.9 percent to
24 percent. With most unsecured loans offering a rate of 13 percent, you
may be better off taking out a personal loan at a lower rate from the start.
It's important to understand that minimum monthly repayments will not be
enough to clear your debt at the end of the promotional period. "You
have to do your own maths," says the co-ordinator of the Consumer Credit
Legal Centre NSW, Karen Cox.
You should also find out what other fees apply. With the GE Money
Creditline offer for example, there's a one-off establishment fee of $25
and a monthly fee of $2.95. The monthly fee only applies if there is an
outstanding balance on the card. If you've kept the card just in case
you want to take advantage of an interest-free promotion at a later
date, you don't have to pay the fee.
Make sure you read all the relevant paperwork before signing up. "All
the terms and conditions, fees and charges are clearly outlined in the
documentation provided," says GE Money's general manager of retail
finance, Greg White.
Once you take out a loan, you will be sent a card, which you can use
again for interest-free promotions. Things can get confusing if you buy
more than one item on the card. That's because when you're making
payments you can't choose which loan the money goes towards, says Lane.
"It's virtually impossible to repay the loan you want to repay."
It's still a debt
"Remember, even if it's interest-free, it is still a debt, it's still
money that you owe and you should treat it like any other debt," says
Cox. It's probably a good idea to make regular monthly repayments so the
loan is paid off in time, rather than hoping you'll have, say, $5000 at
the end of the promotional period.
These loans are only interest-free if they are paid on time. If not,
you'll have to start paying interest and at 27.99 percent; it's not
cheap. White says it's a common misconception that if you don't pay the
loan off that interest is backdated. This is not the case.
"The really important thing is to make sure you can pay it off on time
or, if not, have a low-interest account you can transfer the balance
to," suggests Cox. Depending on the amount outstanding, this could
either be a credit card or a personal loan.
If you're not disciplined, a personal loan may be a better option
because you're forced to make repayments and clear the debt in a
specified time, unlike a credit card where the debt simply revolves.
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