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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.
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.
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.
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.
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|
|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.
Deferred interest and zero-interest offers may sound similar on the surface. Yet, as you can see, these two types of offers can have very different impacts on your bank account.
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.
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:
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.
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.
If you already signed up for a deferred interest offer, the following strategies might help you avoid common pitfalls.
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.
A deferred interest financing offer sounds like it will help you avoid paying interest. Yet in reality, these offers often only delay your interest fees until later — and they could punish you for a misstep along the way. Learn why deferred interest financing may not be nearly as attractive as it seems.
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