The 'interest-free' ghost haunting students

14 August 2017

The 'interest-free' ghost haunting students

More than 30 per cent of tertiary students with 'interest-free' overdrafts are paying interest

Research shows:
• 31 per cent of tertiary students make use of interest-free overdrafts
• 49 per cent of tertiary students with interest-free overdrafts do not pay back their overdraft before leaving university
• 11 per cent of students with interest-free overdrafts paid the overdraft back in 6-12 months and incurred interest
• Nine per cent of students with interest-free overdrafts took more than two years to pay it back, incurring interest over that period
Interest-free overdrafts might be tempting, but new research from CreditSimple.co.nz shows 49 per cent of students are not paying back their interest-free overdrafts before leaving university, and an alarming nine per cent took more than two years to pay their overdraft back now.

Students are going into university knowing they will likely be faced with a large ‘interest-free’ IRD bill at the end of it. However, the research suggests this ‘interest-free’ appeal is making student finance deals tempting with nearly a third (31 per cent) of tertiary students making use of interest-free overdrafts.

CreditSimple.co.nz spokesperson Hazel Phillips said banks offer some great deals to students, however students need to change their mindset and use these deals to their advantage. If a financial plan is put in place, incurring interest can be avoided.

“Interest-free finance deals are a perfect way for students to start building their credit report. If regular payments are made before interest starts incurring, it will be positively reflected on a student’s credit score and provide a foundation for the future,” Ms Phillips said.

Ms Phillips said students needed to have a financial plan in place when applying for interest-free overdrafts to avoid being stung with high-interest payments they could not afford.

“It's important students are using interest-free deals correctly and that they put payment plans in place to ensure the debt is paid before they leave university. When interest starts being added to loans, it makes it harder to keep up with minimum payments and a missed or late payment can damage your credit score.”

Five top tips for managing interest-free overdrafts and maintaining a healthy credit score:
1. Make a payment plan to ensure the debt can be paid off in full before agreeing to the terms
2. Set up weekly automatic payments
3. Review your loan every month and ensure you’re on track to clearing the debt
4. Make additional payments to help clear the debt
5. Regularly check your credit score via CreditSimple.co.nz to make sure your payments are up to date and you don’t have any credit defaults

Most banks in New Zealand offer special rates to students, however when students leave university remaining debt can occur high interest.

Kiwis can check if their credit health is in shape by getting their credit score for free at www.creditsimple.co.nz.
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