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.
What lenders must do
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
Find what lenders must do, what to do if you’re having problems paying, and plain English information on credit contracts:
Loans and debt