As the holiday season approaches, many consumers may consider “interest-free” loans to manage their festive expenses. While these offers can seem like a great deal, Financial Services Complaints (FSCL) – a Financial Ombudsman Service – is encouraging consumers to read the fine print to avoid unwelcome surprises.
“Interest-free loans can be a helpful option when managed carefully, but misunderstandings about repayment terms can lead to financial stress,” says Financial Ombudsman Susan Taylor. “We urge consumers to be cautious and ask questions to ensure they fully understand their financial commitments.
“For families under financial pressure this Christmas, taking time to review financing terms carefully can save them from unnecessary stress in the new year.”
A recent case highlights how easily confusion can arise. Isla*, who financed $15,000 in home improvements with a 60-month interest-free loan, was shocked to find her initial repayment was significantly higher than expected. Misunderstanding the repayment terms left Isla struggling to meet unaffordable minimum payments.
Isla assumed her repayments would be fixed at $250 equal payments per month throughout the five-year loan term. However, the loan terms required a minimum repayment of 3% of the outstanding loan balance, meaning her first payment was $450 and would gradually decrease over time. This key detail was not clearly explained during the application process, leaving Isla unprepared for the higher upfront repayments.
When the payments proved unaffordable, Isla asked the lender to restructure the loan to $250 monthly. However, the lender declined, stating Isla should have read the terms before signing.
Isla complained to FSCL, and through our investigation, the lender agreed to adjust the loan terms to align with her expectations.
“This case highlights the importance of understanding loan repayment terms before signing,” says Ms Taylor.
You can read the full case note here.
Tips for consumers considering interest-free loans
- Read the terms and conditions carefully – look for clauses about repayment schedules, minimum payments, and interest charges after the interest-free period ends.
- Ask questions – If anything is unclear, ask the provider to explain. Being fully informed is better than facing unexpected costs or fees.
- Plan your repayments – ensure the repayment structure aligns with your budget. Some agreements might initially require higher payments than advertised.
If something has gone wrong with a financial service provider, people can make a complaint to FSCL at www.fscl.org.nz, by calling 0800 347 257, or by emailing .
