Interest-free loans fill the airways, we’re constantly bombarded with offers that seem too good to be true. Loans on everything from jewellery to solar that consumers can pay off entirely on their own time, as it pleases them.
How can those wonderful people offering these loans make any money? Well, quite simply, because they are too good to be true. The truth is that these companies make their money through additional charges, both to the customer and the retailer, including a percentage of the total sale that they charge to the retailer; known as a “Merchant Fee”
Of course, this means that, for the retailer to maintain their profit margin, they simply inflate the price of the system to incorporate the hefty Merchant Fee. Exactly how much the price will be hiked up depends on the loan, but quite often is around 25%; a quarter of the true “cash price” of the system.
So, for example, a solar PV system that would usually cost $5,000 would be advertised as $6,150 with “interest free finance available”.
Other fees and charges associated with these loans can also be quite staggering. Here is an example of fees you could expect from an interest-free loan company:
- A $3.50 monthly Revolving Credit account fee, which will continue until you close your account, even after you finish paying off your loan.
- $15 Late payment fees
- $2.95 Fortnightly payment processing fees
- $35 to $90 customer establishment fee, based on the deal your retailer receives.
- $15 Change of details fee, which will apply for things as simple as changing payment dates.
- $30 Collection fees
- $22 Repeat purchase fee
Assuming you complete paying off your loan within three years, that’s still a minimum of $446 in additional fees, taking what was a $5,000 system up to over $6,500.
Now you can see how, even if there is no interest, the cost of an ‘interest-free’ loan is very often more expensive than what you would have paid if you had taken even a half-decent personal loan.
On top of all of this, due to their no-interest loophole, these loan companies manage to avoid falling under the National Consumer Credit Protection Act, which is how they’re able to get away with fees such as these in the first place.
So, what option does that leave you with? Well don’t worry, there are better solutions out there. Not only do certain state governments offer legitimate interest free loans (such as the ACT Sustainable household scheme), but any Australian customer can also make use of Green Loans, such as the one’s our financial partner Plenti offers.
These loans are government-backed and are specifically tailored to assist Australians in setting their home up with solar, batteries, heat pumps and other energy efficient products. Plus, as they fall into the National Consumer Credit Protection Act, the government works to ensure these loans are kept fair for the consumer and the retailer, unlike the shady interest-free deals non-government entities may be offering.
Plenti is one of the most respected names in the Green Loan sphere, they offer rates as low as 5.75% P.A, no exit fees, and rewards for good credit. We’re proud to have Plenti as our financial partner and work with them to help more Australians get solar added to their home.
If you’d like to look into a Green Loan for your home, check out our Solar Plan page today, or if you’d like to learn about what legitimate Government supported interest-free loans are available in your region, contact us on 1300 739 355 to discuss what packages we offer on finance.