Don't fall into the deferred-interest trap

Pay late by a day and you face a huge penalty


Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Dear Credit Smart,
I got a one-year, no-interest credit card that I intended to pay off before the interest would accrue. However, I missed it by five days. Do I have any recourse or am I responsible for that interest? – Raye


Dear Raye,
Deferred interest can be a great deal but the rules are very clear. Unfortunately, the consequences for missing the deadline are severe. You do always have the option of calling your creditor to see if it will waive the interest penalty. If you had missed the cut off by one day you might have a case. Since you missed it by five days, I’m not sure you will have much luck.

For anyone who has a card or loan with deferred interest it is very important to know what the rules are. The most important thing to understand is how much it will cost if you do not pay by the deadline. These rules must be clearly spelled out on the monthly billing statement.

On loans for a specific purchase (furniture for instance), the billing statement will include a disclaimer that says that deferred interest is accrued from the date of purchase and will be added to the account unless the promotional purchase is paid in full by the promotional expiration date. There may also be a required minimum monthly payment, which must be received by the due date each month.

Purchases made with a credit card such as yours should be carefully considered in order to take full advantage of no interest. Making the minimum monthly payments can be even more important here because being late even one month can result in a premature expiration of the deal.  

It is a good idea when signing up for deals like these to determine for yourself exactly how much will be required monthly to pay the balance off in the allotted time. In addition, I would suggest that consumers plan on paying these types of loans and credit cards off a month or two early if possible. At the very least, the last payment should be made a few days prior to the actual due date so there is no question that you met the deadline.

It’s also important to remember that the deadline for payment is not just the date the payment is due but the time of day as well. This comes into play if you make your payment by phone or online. The time will also be spelled out on the monthly statement.

As I said, I don’t know that you will have much luck getting your creditor to waive the interest, but a phone call won’t cost you anything and is probably worth your time.

Remember to always use your credit smarts!

See related: Be smart about deferred-interest financing

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Published: October 15, 2016

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Updated: 10-27-2016

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