Debt Basics

The phrase 'interest-free' is often plastered across shop windows and can be very tempting if money is tight. 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 per cent. 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.

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?