If paying by credit or debt, add up all costs, eg interest and any fees, as well as the price tag. This helps you decide if it's worth buying or not.

Before you buy

Banks, lenders and retailers offer a lot of different deals to get you to use their services or buy their products. Through clever marketing and advertising, these deals can sound like they won't cost you anything — but there is almost always a catch.

Deals that can have hidden costs include:

  • 0% loans
  • payday loans
  • balance transfer deals
  • buying on credit
  • buy now, pay later schemes
  • truck shop sales.

These types of deals generally have additional fees and charges. So even if you can pay off the loan or item within a 0% interest period, you will still pay more than if you bought it outright. If you don't pay it off by the time the 0% interest period ends, you will probably be charged a high interest rate on the outstanding amount.

Hire purchase and buying on credit

Truck shops

Credit cards

A 0% interest deal is only worth it if you are sure you will repay it within the interest-free period.

Understanding the true cost of using credit or debt to pay for something can help you decide whether it is worth it or not. If you need something urgently and can't otherwise afford it, or if you can pay it back quickly to avoid paying too much interest, it might be worthwhile. But if you can, waiting to buy it until you have saved up the money will almost always be cheaper.


How to work out true cost

If a deal sounds too good to be true, it probably is. Always read the contract, and if you are unsure about anything, ask questions.

Before you enter into a credit contract, the lender has to tell you the:

  • initial amount owing
  • amount of each payment you’ll make, and the number of payments
  • credit limit
  • interest rate, total interest you will pay, and how the interest will be calculated
  • fees and charges, eg set-up fees or insurance fees.

Understanding credit contracts

Check for hidden fees, eg a break fee if you want to make extra payments or pay the debt off early.

Before you sign the contract, you should work out the total amount you will pay over the life of the loan.

Sorted's online debt calculator can work this out for you. You will need the interest rate, the amount of any fees, and the term or how much you will repay and how often.

Debt calculator(external link) — Sorted

If it's a 0% interest deal, make sure you check what the interest rate will be when the 0% interest period ends.

Fees a lender may charge(external link) — Commerce Commission

It's not just lines of credit and debt that can have hidden costs — buying cheap items that you have to replace regularly can be more costly than buying a higher quality, more expensive alternative.

Identifying misleading advertising

When a special offer or price promotion is advertised, the seller must state if any extra conditions or exclusions apply. If they don't, the advertisement could be misleading.

Some other examples of how an advertisement could be misleading are:

  • statements about the origin, quality and use of the goods that are not clear or are not accurate
  • comparisons with competitors about the same products that are not accurate
  • special offers or discounts that are not genuine.

Misleading prices or advertising


Your rights

When you borrow money or buy products on credit for your personal use and the lender charges you interest and fees, you are entering into a consumer credit contract.

This means rules cover:

  • what the lender has to tell you up front
  • how interest and fees are charged
  • when you can cancel.

Understanding credit contracts

If you buy from a private seller, you have rights under the Contract and Commercial Law Act to:

  • cancel a contract if the other party misled you into entering into a contract
  • claim compensation for any other loss or damage as a result of being misled.

If things go wrong

If you suspect something you bought or signed up to might cost more than you expect, speak to the business or seller first. Ask them to explain the costs to you. If they are costs you were not made aware of or you were misled about, you might have a case under the Fair Trading Act.

How to complain

If you can't agree a solution directly with the seller, our Resolve a problem tool has advice on next steps.

Prices — Resolve a problem

If you are in trouble with debt or credit

Speak to any businesses you owe money to as soon as you think you might have trouble meeting your payment obligations. You might be able to arrange a different payment plan, a repayment holiday or apply for hardship.

You can also get free confidential help and advice from a budget adviser from the Financial Capability Charitable Trust.

Find a budgeting service(external link) — Financial Capability Charitable Trust

Overdue debts