Interest-free deals explained

Interest free deals can come with strings attached

The phrase 'interest-free' is often plastered across shop windows and can be very tempting if money is tight. But is the offer of an interest free loan all that it appears?

BBC News examines the benefits and dangers of going for an interest free loan.

If you follow the letter of the agreements attached to these 'buy now pay later' deals, they can actually work very well but you should be aware of the pitfalls.

Often you will be given a set period, say six months, in which to repay the debt and if this is achieved then you will be fine.

However, if you are unable to pay it back in time you will have to pay interest and this can be charged at rates of up to 30% Annual Percentage Rate (APR).

High charges

Not only that, the interest at these sky-high levels will also be back-dated to when you took out the agreement meaning the item will have cost you a small fortune.

Dodge the interest Check how long the interest-free period lasts What rate is it after that? Set up a direct debit to pay off the balance

Also look carefully at whether the trader has marked up the goods being offered interest-free so you pay more than you would have done elsewhere.

If you decide to take up one of these offers then it is a good idea to keep records of all your payments so you can prove you made them at the allotted times.

If the trader claims you missed a payment and you can't prove otherwise, it could cost you a substantial amount and spark an ugly dispute. If you can afford to pay for the item in one shot then why not skip the interest-free deal and try bargaining for a cash discount instead?

However, it is against the law to give a discount on a good or service which has an interest free offer attached. But that fails to stop some firms from lowering the price to secure a sale.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.