Making money from interest free loans

March 14th, 2009 at 9:29 am by David Farrar

The ODT has a story of a student who made free money from his interest free loans. Now there were bank loans, not the government , but the principle is the same in terms of highlighting why it is a bad idea.

Of course the interest free bank loans are a deliberate loss leader to try and get to join their bank, hoping they will remain with them. And it tends to work as a strategy.

At school I banked with Wesptpac after winning a bank account (and some money) in an Australasian maths competion. But at university went with BNZ for the interest free overdraft and have stayed with them ever since.

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8 Responses to “Making money from interest free loans”

  1. tvb (4,330 comments) says:

    The Government loans are normally used to cover living costs and course expenses. Borrowing to meet daily needs is not generally a good idea but making that money interest free over the period of the course of study has some merit – just. I find your critique of the use interest free money to make money – odd. We need people like this enterprising person to make money, there are plenty who live off the confiscated wealth of such people and contribute very little except support the Labour Party and ask for more and more from the community.

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  2. dog_eat_dog (778 comments) says:

    Most banks ask if you have student accounts with other vendors. Unless he was closing accounts as he opened them, he probably violated the TOS agreement with at least one of the banks.

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  3. SK (37 comments) says:

    How is this news? It has been happening for as long as banks have had interest free overdrafts yet every now and then a newspaper feels a need to run a story on some “enterprising” student. But more importantly how did he manage to get a “safe” term deposit at 9.25%? The only companies I’ve seen in the last two years with rates that high are finance companies, banks topped out around 8.50%.

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  4. PaulL (5,954 comments) says:

    Of course the interest free bank loans are a deliberate loss leader to try and get students to join their bank, hoping they will remain with them.

    As are the government interest free loans a loss leader to attempt to get students to vote for them, hoping they will continue to do so over a lifetime.

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  5. calendar girl (1,214 comments) says:

    Student loans are thought of as being interest-free these days, but interest is still payable on outstanding loans of former students living overseas.

    Does anyone know what the relevant interest rate is these days? Has it come down in line with the 5.25% drop in the OCR over the last 6-7 months?

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  6. SK (37 comments) says:

    The interest rate is 6.7% for the 2009 year, I think it was 8 and a bit last year. I imagine the 2010 rate will be somewhat lower.

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  7. WilliamPitt (25 comments) says:

    Well actually it is quite hard to get such a large interest free loan from the Government at one time. Most of a students loan is paid directly to the University and is never seen by the student. The living costs given out weekly are usually needed byt the student to live off and the $1000 of course related costs is usualy needed to but books etc. Also at anytime a student can be audited by Studylink and made to repay any money that isn’t legitimately accounted for. So unless the student is already well off financially and is willing to risk being audited there is no way that a student would think of trying to do this with a government student loan. That said it is a good way to get back at the banks who prey on us students during orientation week and bribe us with free cash and free food- shame on them.

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  8. petal (705 comments) says:

    BNZ got me the same way at uni – no transaction fees. Got my 1st mortgage from them. But then they started closing branches all over the place, and after having my “local” account moved 3 times I called it quits. Since then had a very shaky and unpleasant journey with National, Westpac and ANZ until I got to the ASB and haven’t looked back. But yeah, the “free” something for students always works!

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