What Is a Deferred Interest Financing Offer?

It’s easy to avoid paying interest on credit card purchases. Simply pay your statement balance in full each month and, with most card issuers, that does the trick.

Yet sometimes credit card issuers have special promotional offers, known as deferred interest financing. These offers give you a chance to avoid interest in another way. With deferred interest, you can make a purchase now and pay it off later. In the meantime, you won’t pay any interest on qualifying purchases during the special financing period.

Sound too good to be true? It might be. There’s a catch and a potentially expensive one at that.

If you don’t understand the terms of a deferred interest offer, you could still wind up paying all of those interest fees before, during, or after the promotional period expires.

What Is Deferred Interest?

Deferred interest is interest that you’ve accrued on an account, but haven’t yet paid. Instead, the interest is delayed (aka deferred) for a period of time.

If you pay off your balance before the interest-free period expires, you could genuinely enjoy short-term free financing. But if you don’t pay off the total balance by the offer’s deadline, or if you miss a payment, the interest that’s been accruing in the background may be added to your account in one lump sum.

How Deferred Interest Works

Deferred interest offers come in a variety of forms. They are commonly marketed by retailers and other companies for the purchase of big-ticket items like appliances, electronics, furniture, or even medical procedures.

Below is a hypothetical example of how a deferred interest offer on a credit card might work.

1. A credit card issuer offers “no interest if paid in full in 12 months” when you use your account to buy new appliances.
2. You charge $2,000 worth of appliances on your account.
3. At first, you pay $250 per month because you have a goal to reach a zero balance before the payoff deadline.
4. Later, you start making the minimum monthly payments on your account instead.
5. When the 12-month promo period expires, you have an unpaid balance of $500.
6. The card issuer retroactively charges you interest (at the account’s regular APR) on the full $2,000 original purchase. The interest is tallied from your purchase date forward.
7. The full interest amount shows up on your next credit card statement.

Deferred Interest vs. 0% APR

A deferred interest offer isn’t the same as 0% APR on a credit card. Either option could potentially help you save money on interest fees, but one — 0% APR — is hands down a better deal.

• Deferred Interest: Interest gets calculated in the background. If you miss a payment or owe any remaining balance when the promo period ends, all of the interest that accrued from the date of purchase will be added to your account.
• 0% APR: No interest gets calculated in the background during the 0% APR period. When the promotional period ends, any remaining balance or future purchases are subject to the regular APR on the account. But no interest is charged retroactively, whether you’re carrying an outstanding balance or not.

The following chart provides a side-by-side comparison between a 0% APR offer and a deferred interest promotion.*

	0% APR	Deferred Interest
Promotional Offer	0% for 12 months	No interest if paid in full in 12 months
Purchase Amount	$4,000	$4,000
Amount paid during the promotional period ($250/month)	$3,000	$3,000
Remaining Balance (Principal) When Promo Expires	$1,000	$1,000
Interest Rate During Promo Period	0%	25%
Interest Accrued During Promo Period	$0	$1,000
Interest Rate After Promo Period	25%	25%
Amount Owed When Promo Period Ends	$1,000	$2,000

*Note: This example is hypothetical. The amount of interest you pay will vary based on the terms of your account.

Does My Credit Card Charge Deferred Interest?

Deferred interest is rare among credit cards from major issuers. Instead, deferred interest offers are more common with retail store credit cards and co-branded credit cards.

If you want to find out whether your credit card charges deferred interest on certain purchases, one of the following approaches may help.

• Check your credit card agreement.
• Search the credit card issuer’s website.
• Call customer service.

Certain terms may indicate that a card offer is subject to deferred interest. For example, there may be cause for concern if you come across terms such as:

• Deferred Interest
• Retroactive Interest
• No Interest If Paid In Full

The CFPB recommends looking for the word “if” when you’re considering a promotional financing offer. The “if” is a red flag that there’s a catch involved. In other words, you might pay more than you expected in the end.

Deferred Interest — The Worst Offenders

Most credit card companies don’t extend deferred interest financing promotions. But there are a few card issuers who do. Here’s a list of some of the worst offenders.

• Amazon.com Store Card (Review)
• Barclaycard Financing Visa® (Review)
• My Best Buy® Credit Card and My Best Buy® Visa® (Review)
• The Home Depot Consumer Credit Card (Review)
• Lowe's Advantage Credit Card (Review)

How to Manage a Deferred Interest Offer

If you already signed up for a deferred interest offer, the following strategies might help you avoid common pitfalls.

1. Pay the balance in full before the no-interest period ends. This is the easiest way to avoid retroactive interest charges. Consider setting up automated payments to make sure you’re paying enough to satisfy the balance in full before the payoff deadline. Divide the total balance by the number of months you have to pay, and that should be your monthly payment (consider dividing by one fewer month to pay it off early).
2. Don’t use the card for any new purchases. When you use your account for new charges (at your regular APR), payments above the minimum amount due will be applied to that higher-interest balance first. This is a requirement under the Credit Card Accountability Responsibility and Disclosure Act (aka the CARD Act).
3. Consider a balance transfer. Can’t afford to pay off your balance before the no-interest period expires? A balance transfer credit card might save you money until you can eliminate your debt.
4. Understand the consequences of a late payment (and avoid making any). Depending on the terms of the offer, a late payment might revoke your deferred interest period immediately. This could trigger the apocalypse and add interest charges on the entire balance for the entire length of the loan.

Why Deferred Interest Is Best Avoided

It’s best to avoid deferred interest offers altogether. Unless you’re 100% certain you can pay off your full balance before the no-interest period ends, these promotional offers could come back to bite you.

The smartest way you can manage your credit cards is to never charge anything on an account that you can’t afford to pay off right away. If you need affordable, short-term financing for an emergency expense, either a 0% APR credit card or a low-interest personal loan should be a safer bet.

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