Make ‘Interest Free’ Work for You

Maryanne
November 16, 2016
Interest Free, Repay home loan, Save Interest, Save Money
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Learn how to make you money work for you

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 own money to work. By following these simple tips, you can start smashing the savings.

1. Read the fine print
It may sound obvious but fees and charges (like monthly fees or an establishment fee) may be hidden in the fine print. These hidden fees replace the interest charge, so you want to make sure they are minimal. So to make the interest free period benefit you, be sure to read the fine print before signing anything.

2. Make the full repayments
In most cases, a minimal repayment (or even no repayment at all) is required. This means you may have a balloon amount left owing right when the interest rate goes from 0% to a much higher rate. To avoid paying massive interest in future, work out what the repayments need to be to have the loan repaid at the end of the term and then continue to make those payments into separate account (minus any minimum repayments you may need to make). Right before the interest free term expires, you can then transfer the funds to repay the loan in total. For example, I borrow $5000 with a 24-month 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 these repayments required to pay off your loan in full into an account. I 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. Therefore, you will need to account for it when you are applying for any other debit and most importantly, you should make sure you are on time with any payments so you have a good credit history.

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