Tens of thousands of ‘interest-free’ shoppers slugged rate hike

Australia’s largest provider of interest-free shopping and consumer finance upped all customers’ terminal interest rate by 3 percentage points last week to an eye-watering 29.99 per cent.

What’s more, the increase applies to every purchase already made by every existing customer.

Shoppers taking up interest free credit offers from Harvey Norman will soon have to deal with an increased rate.Credit: Scott Barbour

Latitude Finance Australia’s GO Mastercard and Gem Visa offer up to five years interest-free on goods from Harvey Norman, Domayne, Joyce Mayne and many other retailers.

But even customers who have signed up previously will now be hit with 3 points of extra interest on “expired promotional purchases”. In other words, on any debt that remains at the end of the interest-free period.

In response to questions, a spokesperson for Latitude said: “Unprecedented interest rate hikes have added significantly to our funding costs. While we have made the difficult decision to increase the expired promotional rate, GO Mastercard and Gem Visa customers can still shop interest free for up to 60 months on promotional offers at thousands of retailers, providing excellent value compared to traditional credit cards.”

The sting in the tail of this type of credit has always been the potential cost if you fail to clear the debt in the 0 per cent interest window: now it’s virtually a 30 per cent cost. And that rate at the time the item may be well-worn and ready for replacement.

Rachel Wastell, a spokesperson for the price comparison platform Mozo, said shoppers should be cautious of interest-free payment plans on promotional credit cards.

“One to five years interest-free may seem like enough time to pay off a purchase, but there’s a real risk you could forget to pay it off, especially with those longer terms,” she said.

“Consumers shouldn’t forget that it’s still a credit card, so it can revert to a very high interest rate after that interest-free period ends.”

Mozo’s database contains many 0 per cent introductory rate credit cards that revert to an interest rate far lower than 30 per cent.

These offers are all shorter than what you can get from Latitude. But interest-free deals from the likes of Latitude are restricted by type of purchase, type of repayment plan and also the retailer – an interest-free credit card is accepted regardless of the item purchased.

So, what are the alternative introductory, interest-free deals on offer from more traditional cards?

You can get 12 months interest-free on new purchases on Bankwest’s Breeze Mastercard and Virgin Money’s No Annual Fee Card. The applicable interest rates after the intro period are 12.99 per cent and (a much higher) 18.99 per cent.

The other cards that make Mozo’s top-five list offer six months: Suncorp, Commbank and Citi have a rate thereafter of just 12.74 per cent, 13.99 per cent and 14.99 per cent, respectively.

The key to using interest-free shopping facilities with no interest is to clear your debt within that interest-free period.

Note that – as with these cards – you can pay off a Latitude purchase early and without penalty; you are not locked into the initial interest-free term.

And Latitude says customers do. “The vast majority of interest-free shoppers pay off their balance within the promotional period, so they pay no interest whatsoever. Customers can also access six months interest-free on everyday purchases above $250.”

The key to using interest-free shopping facilities with no interest is to make repayments sufficient to clear your debt within that interest-free period. But the overnight end-interest change will be a blow to those with interest-free purchases they are struggling to pay off in time to avoid the enormous interest.

And note that not many regular credit card providers have moved rates higher. That’s because the dirty little secret of the banking world is that most never fell – not on the rock-bottom pandemic interest rates or the credit crack up’s emergency interest rate settings.

Mozo records show the best (7.49 per cent) and worst (27.49 per cent) have barely budged in the past 10 years. But the highest cash advance/expired promotional purchase rate is – now – Latitude’s 29.99 per cent.

Latitude says: “We are in the process of advising our customers. Latitude has well-established hardship policies and takes its responsibility to help customers in difficulty very seriously.”

If you are finding it difficult to meet repayments, Latitude and all financial institutions are obliged to help.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me. Follow Nicole on Facebook, Twitter or Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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