What’s a Deferred Interest Credit Card?

Any balance you hold over time does accrue interest, but you will only owe that interest if you don’t pay off the balance before a certain date . Here’s an example based on buying a $400 TV with a card that has one of these two promotions. In this example you make your payments on time but don’t pay off the whole balance during the promotional period.

Not having to pay any interest for a certain period of time can also lull you into a sense of complacency. Before you know it, that promo period will be up, and you might have to scramble to pay off the card or be slapped with a high interest charge you hadn’t planned on paying. You’ll see deferred interest credit cards most often at retail stores that sell high-priced goods — places like Home Depot, Best Buy, and Sears. One way to curb your spending is to keep track of your balance and how much interest is accruing along with it. Simply knowing how much money you owe — and how much interest you could owe — may be enough to prevent additional spending.

See if you’re Pre-approved before you apply

And for a mortgage, information about interest calculations and charges can be found in the documents you signed at closing. You may request to apply extra amounts to the deferred interest balance before other balances. So instead of waiting several days for your physical card to arrive in the mail, you can make charges on your The Amex EveryDay® Credit Card from American Express right away. Just know, you must activate the rotating categories each quarter in order to earn the bonus rewards rate on those purchases.

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. Because the regular interest rate is often very high with deferred interest offers, the lump sum amount can be excessively high. While many borrowers pay off their entire loan on time, many don’t (which is how lenders profit from “no interest” promotions). Deferred interest offers are similar to no-interest offers, providing financing without credit card interest charges for a promotional period. However, they are fundamentally different, and it’s important to understand how.

Deferred interest vs. 0% APR

Deferred interest promotions are a way for retailers to get customers to sign up for their store credit cards. While it’s similar to a 0% introductory period, 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. This promotion may also require you to meet other terms as well, such as making your minimum monthly payments on time.

• Below, CNBC Selectexplains how to check if your card charges deferred interest and how you can avoid these hefty charges.
• While writing about finance and insurance isn’t something that keeps most people awake at night, it is what Susan Wright has focused on for more than 25 years.
• But before you rush to your local bank or ATM, you should know that most credit cards will charge you a fee for this type of transaction.
• So, let’s pretend you have 18 months of deferred interest, a 20% APR, and you make a purchase of $2,000.
• Unfortunately, though, borrowing too much can end up being hazardous to your financial health.

“No interest” financing is a staple of store credit cards and medical credit cards, while “0% APR” promotions deferred interest credit cards are the norm with bank-issued cards. This is the easiest way to avoid retroactive interest charges.

Tell us how you plan to use the card

Lindsay VanSomeren has been working as a personal finance writer and expert since 2015. Her work has appeared on Business Insider, Credit Karma, LendingTree, Northwestern Mutual, and The Balance, among other publications. She is passionate about making personal finance accessible to everyone by delivering straight talk about financial products. She has a bachelor’s degree and a master’s degree from the University of Alaska Fairbanks. It’s also wise to set a calendar reminder for a few weeks before your card’s deferred interest period ends. This way, the date will be on your radar — even if you can’t afford to pay off the entire amount.

If I’ve paid off my TV by the end of the 12 months, I owe no interest, and it was as though the store gave me a zero-interest loan. Given that most store credit cards come with very high-interest rates, not paying it off in full would be flirting with financial disaster. Yes, Deferred Interest promotions require a minimum monthly payment; however, these minimum payments are NOT guaranteed to pay the promotional balance within the promotional period. You may have to pay more than the minimum monthly payment to avoid accrued interest charges. This is important to do since if you don’t pay off the promotional balance within the promotional period, interest will be charged to your account from the purchase date.

How to minimize the cost of a cash advance

With this offer, interest accrues on your account from the purchase date, but is only charged if you do not pay off your promotional balance within the defined promotional period. Most retailers offer store-branded, https://online-accounting.net/. However, these minimum payments alone won’t probably pay off the entire balance at the end of the deferred interest period. What makes deferred interest financing offers alluring is that you usually don’t have to pay any interest if you are able to pay the full balance before the deferred interest period expires. Store credit cards typically do not offer risk-based pricing.

If you pay it off on time, you essentially had an interest-free loan. If your employer pays by the hour, ask whether you can work overtime. If not, can you pick up a second job at night and on the weekends? You could also use a skill such as writing, carpentry, tutoring or design to earn money as a freelancer.