Following concern about the lack of consumer awareness of the potential pitfalls of interest free deals, Fair Trading conducted consumer research in 2008. The research aimed to find out how consumers buy goods using interest free deals, what information is provided to them and their overall satisfaction with the deal.

The research comprised an online survey with more than 900 surveys completed, two focus groups and 50 mystery shopping visits in department stores and retail shops offering interest free deals in Sydney, Wollongong and the Central Coast. The mystery shoppers recruited were real consumers who were interested in making a furniture or electrical goods purchase and were considering an interest free deal. 

Survey

The survey revealed the following:

• 71% of people surveyed have taken out more than one interest free deal. 
• Almost 20% said they had to purchase goods of a higher value than they intended to buy in order to get the interest free deal.
• Almost 45% of people were not told by the sales person when they signed up that they would have to pay fees and charges.
• A third of people said the salesperson had not explained that they would be charged interest once the interest free period ended.
• Less than a third of people read the paperwork in detail.
• Almost 70% of people only read the paperwork quickly or did not read it at all.
• Almost 20% missed or made late payments and so paid late fees on their interest free deal.
• Almost 45% said the finance company’s suggested minimum repayment would not pay off their deal within the interest free period.
• 67% of people received a credit card as part of the deal.
• Over 75% of people who received a credit card said it had a higher credit limit than the purchase price of the goods bought on interest free.
• 20% of people who received a credit card made more purchases with the card.
• 7% of respondents indicated they paid interest on their purchases.
• 57% of respondents were satisfied or very satisfied with the interest free deal and 24% were unsatisfied or very unsatisfied.

Survey participants also said they would have liked to have been told more about the following things before signing up to an interest free deal: 

• credit cards
• fees and charges
• minimum repayments
• interest rate
• length of the deal
• paperwork
• implications of taking out further interest free deals.

Comments from survey respondents

Credit cards -"I wish the salesperson would have advised me that I would receive a credit card. I was not advised of this. I am VERY POOR at paying Credit Cards back. I find them very dangerous. But as soon as I had one, I found it too tempting. I wish that it had never been sent." 

Minimum repayments - "We considered we should have been advised that the repayments requested would NOT pay off the item in the time advised. Our previous purchase did so we were quite shocked at the end of the period to have so much of the balance remaining. We then had to pay interest on the balance until it could be cleared and had to increase our repayments to clear the balance as quickly as possible which added strain on the budget as we had planned on the repayments ceasing at that point." 

Fees and charges - "It would be so helpful if they explain the monthly fee and set up fee before we sign up." 

Focus groups and mystery shopping visits

Consumers

The main findings for consumers were:

• Most consumers research products and prices of larger household purchases but not the details of interest free deals.
• Consumers rarely read the fine print.
• Most consumers lack detailed understanding of interest free deals but many believe they know all they need to know.  

Salespeople

The main findings for salespeople were:

• Salespeople do not appear to be actively selling or pressuring customers into taking out interest free deals.
• The majority of salespeople do not appear to be providing incorrect or misleading information, however they tend not to provide details unless asked.
• It is common for salespeople to reassure consumers that the interest free process will only take a short time to complete which may simplify process too much and encourage consumers to sign up too quickly without reading the fine print or asking questions.
• Even if salespeople are very knowledgeable they tend not to explain many details on interest free deals unless asked. Customers must proactively ask questions to obtain details. 
• It is rare for salespeople to communicate that the minimum repayments may not pay off the purchase. 
• Most salespeople are not telling customers that they’ll be taking out a credit card when they take out an interest free deal.

For more information on the Interest free deals research please email: publications@oft.commerce.nsw.gov.au

Disclaimer

Web-based surveys may not provide a representative sample of the population of interest due the self selection of the sample and as a consequence the survey results cannot be generalised to the target population. The accuracy of the survey results is +/- 3%.