If you plan to shop Black Friday deals this year, there’s one thing you’ll definitely want to skip: deferred interest credit card offers.
With their enticing 0% intro APR rates, deferred interest promotions sound like a good deal at first. Who wouldn't want a little interest-free spending money around the holidays? But here's the thing with deferred interest cards: If you don’t pay your full balance before the promotional zero-interest period ends, you’ll be charged retroactive interest on the full amount. That can do a lot of damage to your finances, which is why you should avoid deferred-interest cards.
We’ll go into further details below, including which companies offer the most predatory deferred interest deals and what you can do to spot credit traps.
What Is Deferred Interest?
Deferred interest deals entice shoppers by advertising 0% interest for a set period of time. Assuming you pay off your balance in full before the promotional period ends, you’re fine. But if you have as much as a cent left, you’ll owe the remaining balance, plus back interest on your purchase.
Say you buy a $1,000 computer with a deferred interest card that’s interest-free for 12 months. If you have $40 left after 12 months, you’ll have to pay $40 in addition to retroactive interest — as if the original zero-interest deal never existed.
Why You Should Avoid Deferred Interest
Although it’s possible deferred interest cards can work in your favor, the problem is that many stores and creditors prey on unassuming consumers. According to a recent WalletHub study, 59% of people don’t understand how deferred interest works. What’s more, many retailers only list the regular APRs in the fine print, effectively tricking consumers into signing up for something they don’t understand.
“Deferred interest promotions are one of the biggest credit card traps on the market today,” said National Consumer Law Center senior attorney Chi Chi Wu. “Avoid them at all costs. No interest sounds tempting now, but you could end up in the trap of huge interest payments later.”
To avoid falling for a deferred interest credit card, experts say you should avoid plans that advertise “special financing” and “bill me later” options. And if you do sign up for one of these promotions, be sure to read the fine print first.
Which Retailers Offer Deferred Interest
According to a WalletHub analysis, a large number of retailers offer deferred-interest credit cards, including Home Depot, Lowe's, Amazon, and Wayfair.
The analysis found that Office Depot, OfficeMax, and Best Buy had the worst transparency scores when it came to deferred interest plans.
The Bottom Line: Always Read the Fine Print
Be on the lookout for deferred interest traps during the holidays. Our advice is to avoid them entirely, though if you do find yourself attracted by a deal, it’s critical that you read all of the promotion’s terms. Otherwise, you could be setting yourself up for financial failure.
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