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There's no such thing as a free lunch - and certainly no such thing as free credit.

Hiding in the small print of numerous big ticket furniture and whiteware interest-free deals are administration and penalty fees that can absolutely hammer unwary buyers.

Family Budgeting Service chief executive Raewyne Fox said hundreds of people had come asking for advice after falling foul of interest-free deals.

"We thought it would decrease with the recession and people tightening up spending, but that hasn't happened."

Interest-free deals were most attractive to those who could least afford them. "You don't have to have any hard cash because there is no deposit required to get whatever you need," she said. "The problem is when people sign up without doing their sums first."

The deals on large purchases such as fridges, washing machines and computers usually come with administration, insurance, cancellation and maintenance fees - which make them much more expensive than paying cash. They also come with high interest rates on any amount not paid off at the end of the interest-free period.

Lender Finance Now offers interest-free deals through Big Save Furniture, Target and Bond & Bond. Stores in the Smiths City group - Smiths City, LV Martin and Powerstore - offer deals through Smithcorp Finance. Farmers offers credit through Retail Financial Services.

Fox said the level of monthly payments required to buy the item within the interest-free period was often unrealistic for some people.

And once that period elapsed, some finance companies charged customers interest dating to the beginning of the contract. "The interest is applied retrospectively - that's what people don't understand," Fox said.

Some companies also charged a penalty for paying the debt early.

The biggest difficulty was understanding terms and conditions. "It's quite hard to work out what is in the contract," Fox said. "Some people don't have the financial literacy needed."

GE Finance said this week that a fifth of its customers did not clear the debt within the interest-free period.

According to John Roberts, managing director of credit-recording bureau Veda Advantage, 220,000 people defaulted on a loan payment in the year to June - up 8.8 per cent on the previous year.

Defaults by baby boomers - those now close to retirement age - were up 12.2 per cent. "It is this group who we believe took up many of the interest-free, deferred payment programmes," he said.

Susan Guthrie, from Consumer NZ, said purchasers needed to be aware of the pitfalls of interest-free deals.

The onus was on the customer to calculate how much they needed to pay to clear the debt without getting pinged. "There's a real risk of not paying enough and then getting hit with unexpected interest."

For those who slip behind in their payments, or break other terms in a contract, then the lender can repossess the goods they have purchased.

A free piece of advice

Cassandra Gibbs has discovered the pitfalls to buying on interest-free credit.

The 25-year-old student from Grey Lynn bought a laptop just before Christmas, on a two-year interest-free deferred payment deal.

"I don't have to pay anything for two years, but I pay $10 a week just so I'm not caught out in the end," she said. After two years the huge interest rate "will kick your arse", she said.

She was approved for $2800 on a store card.

"The computer came to just under $2600 so I took the rest out in cash," she said. "What they didn't tell me was that as soon as I took cash out it was interest-bearing. I also didn't realise I would have to pay a $20 minimum monthly payment.

"This was all in the fine print but I didn't read it."