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Low Interest and 0% Intro APR

What is deferred interest?

Many retail store cards offer 0% APR promotional deals, but be wary of how interest accrues on these offers

Summary

Deferred interest plans are often advertised in retail stores as charging “no interest until” a certain date. After that date, however, the interest that has been accruing since the purchase date is charged to the account.

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You may be offered deferred interest if you use a store credit card or retail store financing to make a large purchase. These promotions postpone accumulated interest on credit card purchases for a set time period. That could save you money but deferred interest financing can prove expensive if you’re unclear on how it works.

What is deferred interest?

Deferred interest is essentially what it sounds like. It’s a type of financing in which you can defer making interest payments until a later date.

Retailers that offer in-store financing or store credit cards can use deferred financing promotions to attract new customers. For example, if you’re buying new living room furniture the store might offer deferred interest financing for 24 months.

“It allows you to pay for something using credit with what appears to be no interest or a 0% interest rate, meaning that when you make payments on your purchase, your entire monthly payment is going to the balance on the card or loan,” says Deacon Hayes, founder and owner of Well Kept Wallet.

Deferred interest financing allows you to buy now and pay later without incurring interest charges right away. Amazon, for example, offers special financing of this nature to Amazon Prime Store Card members.

How deferred interest works

Deferred interest doesn’t mean interest-free; you’re simply delaying the payments on interest. When you have to pay interest depends on the financing terms. For example, your deferred interest period may be as short as six months or stretch up to 24 months. During that time, you aren’t required to pay interest, but interest would still accrue on the original purchase amount.

If you don’t pay the balance owed in full by the end of the promotional period, you will have to pay all the interest that’s accumulated since the purchase date. That could prove costly if you made a larger purchase using deferred interest financing that carries a steep APR. While this won’t immediately affect your credit score, it could lead to a higher utilization ratio and late payments if you have trouble paying off the card balance.

Pros and cons of deferred interest

Just like any sort of credit line, there are advantages and drawbacks. Carefully weigh and consider the costs and benefits of deferred interest financing before deciding if it is or isn’t for you.

Pros

  • Convenient financing option
  • Can help budget for large purchases
  • Some offers come with purchase discounts at sign-up

Cons

  • Extremely expensive if not paid off
  • Opening a new card means hard credit inquiry
  • Higher average credit card rates

Deferred interest vs. 0% APR credit card offers

Deferred interest financing and 0% APR credit card promotions may seem the same, but they’re not identical.

“The difference between deferred interest and a 0% APR on a credit card is that with the credit card, when the introductory 0% interest period ends you won’t [accumulate] back interest from the time of the initial purchase,” says Hayes.

The easiest way to tell if you’re signing up for a deferred interest plan is to read the fine print outlined in the financing agreement. Specifically, look for wording related to:

  • How interest accrues
  • The rate at which interest accrues
  • The regular purchase APR
  • When the final cutoff date is for paying the balance in full to avoid interest charges

The Amazon Store card’s fine print, for example, includes the following language to explain how the card’s special financing offers, which come with deferred interest, work: “Interest will be charged to your Amazon Store Card account from the purchase date if the promotional balance is not paid in full within 6, 12 or 24 months respectively.”

The fine print goes on to say that to avoid interest with special financing you would need to: “Pay the entire promotional balance in full before the end of the offer period to avoid interest on your purchase.”

If the financing is truly 0%, then the cardmember agreement would use different wording. For example, the Discover it® Cash Back card includes this language in its rates and terms: “Annual Percentage Rate (APR) for Purchases: 0% intro APR for 14 months from date of account opening. After the intro APR expires, your APR will be 11.99% to 22.99% based on your creditworthiness.”

It’s important to understand those differences so you know what you could end up paying for interest.

“If you’re aware of all the specifics of deferred interest financing, it can be beneficial,” says Nathan Wade, director of marketing at WealthFit Investing. “However, if you’re not well-versed, there is a chance you’ll pay more than you intended.”

How to make deferred interest offers work for you

If you’re thinking of using deferred interest financing, having a plan is the best way to use it to your advantage. That starts with examining your budget to see what you can realistically afford to pay each month.

“You’ll likely have to pay more than the stated minimum payment in order to be able to pay off the entire balance without being charged deferred interest,” says Hayes.

Say, for example, that you make a $1,200 purchase with deferred interest for 12 months. You would need to pay at least $100 per month to zero out the balance to avoid interest charges.

It may also be wise to scout out options for 0% balance transfer promotions just in case you need to shift the remaining balance elsewhere if you can’t pay in full. Keep in mind that 0% APR offers may be more difficult to come by if you don’t have excellent credit.

Alternatives to deferred interest offers

If you’re not sold on the idea of deferred interest, a credit card with a 0% introductory APR on purchases is the next best choice.

There are numerous cards that offer generous 0% APR introductory periods, including:

  • Discover it Cash Back: 0% introductory APR on purchases for the first 14 months on purchases and balance transfers, then a variable APR of 11.99% to 22.99% applies.
  • Bank of America® Customized Cash Rewards credit card: 0% introductory APR on purchases and balance transfers made in the first 60 days for the first 15 billing cycles, then a variable APR of 13.99% to 23.99% applies.
  • BankAmericard® credit card: 0% introductory APR on purchases for the first 18 billing cycles on purchases and balance transfers made in the first 60 days, then a variable APR of 12.99% to 22.99% applies.
  • Chase Freedom Unlimited: 0% introductory APR on purchases for the first 15 months, then a variable APR of 14.99% to 24.74% applies.

The advantage of using a card with an introductory 0% APR on purchases is twofold. First, you would only be subject to interest charges on the remaining balance, not the original balance, if you don’t pay in full before the promotional period expires.

Second, you could earn rewards on the purchase if you choose a cash back credit card. Those rewards could be applied as a statement credit or cash back that you could use to pay the bill, reducing the amount you have to repay out of pocket.

When comparing 0% introductory APR cards, consider the rewards structure along with the annual fee. And of course, pay attention to the regular variable APR for purchases once the promotional period ends just in case you’re not able to pay off the balance in time.

Bottom line

Deferred interest promotions are a way for retailers to get customers to sign up for their store credit cards. While it’s similar to 0% introductory periods, deferred interest actually accumulates and is charged to the account if the entire purchase is not paid off at the end of the period. Most people are better off applying for a credit card with a 0% APR introductory rate than opting for a card that has deferred interest financing. However, if you can pay off the entire purchase balance before the end of the terms, deferred interest cards can help finance large purchases that are paid off over time.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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