If you have been recently thinking about buying some goods or services and putting them on Q Card’s interest free offer then be aware! You surely know that old saying that “no such thing as a free lunch exists”. That’s perfectly true even with Q Card and other similar finance services (GEM Visa or GE Card).
Many people may not be aware but companies like Q Card do not charge interest directly by calling it “interest”, rather, they use another names for it, usually “fees”. So let’s say you decide to purchase something for $500 and take advantage of Q Card’s 24 months interest free period. Let’s see what it will cost you:
Original purchase amount: |
$500 |
Fee for taking long-term interest free period: |
$35 |
Account fee (4 x $22.5 every 6 months): |
$90 |
Total paid in 24 months: |
$625 |
Interest paid: |
$125 |
Interest rate p.a. (simple calculation) |
12.50% (125/500/2) |
Real interest (using proper financial math): |
19.70% |
As you can see, the real interest rate on this deal is 19.703%. Many people would think that the interest rate is 12.50% calculated simply as ratio of interest and principal and further divided by two (2 years). This would be incorrect since in reality with every monthly payment your balance owed is decreasing and so does the interest. Using proper financial math is a bit more complicated, but it’s possible to figure it out, if you know how. Below you can find our detailed workings:
Month |
Opening balance |
Interest |
Interest rate p.a. = (Interest / Opening balance) * 12 |
Principal |
Payment |
Closing balance |
1 |
500.00 |
8.21 |
19.703% |
-8.21 |
0.00 |
508.21 |
2 |
508.21 |
8.34 |
19.703% |
-8.34 |
0.00 |
516.55 |
3 |
516.55 |
8.48 |
19.703% |
-8.48 |
0.00 |
525.04 |
4 |
525.04 |
8.62 |
19.703% |
21.14 |
29.76 |
503.89 |
5 |
503.89 |
8.27 |
19.703% |
21.49 |
29.76 |
482.41 |
6 |
482.41 |
7.92 |
19.703% |
21.84 |
29.76 |
460.56 |
7 |
460.56 |
7.56 |
19.703% |
22.20 |
29.76 |
438.36 |
8 |
438.36 |
7.20 |
19.703% |
22.56 |
29.76 |
415.80 |
9 |
415.80 |
6.83 |
19.703% |
22.93 |
29.76 |
392.87 |
10 |
392.87 |
6.45 |
19.703% |
23.31 |
29.76 |
369.55 |
11 |
369.55 |
6.07 |
19.703% |
23.69 |
29.76 |
345.86 |
12 |
345.86 |
5.68 |
19.703% |
24.08 |
29.76 |
321.78 |
13 |
321.78 |
5.28 |
19.703% |
24.48 |
29.76 |
297.30 |
14 |
297.30 |
4.88 |
19.703% |
24.88 |
29.76 |
272.42 |
15 |
272.42 |
4.47 |
19.703% |
25.29 |
29.76 |
247.13 |
16 |
247.13 |
4.06 |
19.703% |
25.70 |
29.76 |
221.42 |
17 |
221.42 |
3.64 |
19.703% |
26.13 |
29.76 |
195.30 |
18 |
195.30 |
3.21 |
19.703% |
26.56 |
29.76 |
168.74 |
19 |
168.74 |
2.77 |
19.703% |
26.99 |
29.76 |
141.75 |
20 |
141.75 |
2.33 |
19.703% |
27.43 |
29.76 |
114.32 |
21 |
114.32 |
1.88 |
19.703% |
27.88 |
29.76 |
86.43 |
22 |
86.43 |
1.42 |
19.703% |
28.34 |
29.76 |
58.09 |
23 |
58.09 |
0.95 |
19.703% |
28.81 |
29.76 |
29.28 |
24 |
29.28 |
0.48 |
19.703% |
29.28 |
29.76 |
0.00 |
Total |
125.00 |
19.703% |
500.00 |
625.00 |
In our calculation we have also adjusted for no-repayments first 3 months as offered by Q-Card. In the table above you can clearly see that the interest free deals are not truly “interest free” at all. The actual interest rate may be very high. In this case it’s comparable with a standard credit card rate (which is around 19-20%). So, before you submit yourself to any such deal, carefully read the Disclosure Statement which every finance provider is obliged to provide for every customer and do check all the applicable fees.
Conclusion:
The usual account fees and fees for taking long “interest free” periods are usually the same for any purchase value. So, if you purchased something for $2,000 instead of $500 (as in our example) then the effective interest rate would be lower. For purchase worth $2000 and paying $125 in fees (respectively interest) over 2 years, paid monthly with payments starting on 4th month (3 months no-payments deferred period – the same as with Q Card) then the effective interest rate would be only about 5.24%. Therefore, if you decide for an “interest free” deal then do your mats first, figure out what it will really cost you and rather go for higher value purchase which will bring the effective interest rate down.