Consumer Watch: Fees on 'interest-free' deals may outweigh savings

Noel Leeming offers interest free deals, but adds fees. Photo / Doug Sherring

There are calls for stricter rules for retailers on the added fees applied to interest-free deals.

Consumers can put everything from whiteware to jewellery on interest-free finance terms that often stretch to many years.

The Fair Trading Act requires that retailers not offer a cheaper price to cash customers compared to those who opt to pay for a purchase via interest-free finance. But the deals come with administration costs and annual fees, which can add hundreds of dollars.

Consumer NZ has made a submission on the Responsible Lending Code the Government is developing, which will govern how lenders operate.

It may require lenders to advertise interest rates as per annum rates, which can top 500 per cent.

Consumer NZ said it should also provide clear direction on the use of words such as "interest-free".

"The term implies there will be no cost to obtaining credit. However, we are aware that it is used by lenders who impose significant fees.

"These fees are a form of disguised interest and we consider the term 'interest free' is misleading in these cases," its submission said.

Harvey Norman was this month offering 60 months' interest free on furniture and bedding with a minimum purchase of $1250.

The deal had an establishment fee of $55 and an annual fee of $55 - meaning what a customer would pay in the first year is just under the equivalent of 10 per cent interest.

Noel Leeming was offering interest free with the same charges, but for eligible purchases as cheap as $249.

The fees associated with the transaction could represent more than half the original cost of the item, if it took a year to pay off.

Consumer chief executive Sue Chetwin said the rules needed to be stricter "so lenders don't effectively build interest rates into those fees".

Massey University banking expert Claire Matthews said fees could make an interest-free deal more expensive. There was also value in having the money in the bank earning interest over that time.

Harvey Norman said its interest-free deals required minimum payments that were not enough to pay off the items within the interest-free period.