The Ultimate Guide to Credit Cards
Monday, April 19, 2021

What is Deferred Interest & How Does it Work?

What Is Deferred Interest

credit card advice

Andrea Woroch
By: Andrea Woroch
Updated: March 11, 2021
Advertiser Disclosure

Nothing in this world is free, especially when it comes to borrowing money. Although some credit card companies and retailers want you to believe you’re getting a loan or making a purchase sans fees by waiving interest for a promotional period, it comes with a catch — and one that many people are unaware of.

Deferred interest doesn’t mean you’re off the hook for paying interest. On the contrary, deferred interest means that interest charges will be postponed for a certain length of time from the date of your initial transaction.

If you pay off the balance in full before that time is up, you’re in the clear. If not, interest fees pile up unexpectedly. Unfortunately, however, this deferred interest plan often deceives many shoppers.

In fact, 52% of consumers don’t know how deferred interest works, according to the 2020 Deferred Interest Study by WalletHub, and those who ignore the fine print can find themselves in financial trouble.

Deferred Interest is a Retroactive Interest Charge

Deferred interest is typically offered by credit card companies and retailers that promise to waive interest fees on purchases for a set period.

This deferred interest promotion seems appealing when compared with a high interest credit card, and can save people a lot of money on expensive purchases. But it has a downside that many consumers overlook: Those who don’t pay off the balance in full and on time will be charged interest on the entire amount retroactive to the purchase date, regardless of how much of the balance was paid off up until that point.

Missing the pay-by date by even one day or carrying a balance of just a few cents will trigger the deferred interest to start piling up. Missing a payment can also trigger deferred interest to kick in, so it’s important to stay on top of due dates.

Consumers who overlook the fine print or fall into the trap of missing a payment due to an unexpected bill are often surprised by these finance charges. Not to mention, retailers don’t list the regular APRs of deferred interest plans in large enough font or in a prominent location, and sales associates certainly don’t educate shoppers about these terms before pushing the deferred interest offer.

Interest Free Financing Offer

Interest-free financing offers encourage shoppers to spend more than they can afford.

Though deferred interest is typically found on credit cards, even retailers offer financing deals with postponed interest payments on big-ticket purchases such as large-screen TVs, mattresses, furniture, and cars to entice shoppers to buy more than they can afford.

Even mortgages can include deferred interest. In this situation, the unpaid interest is added to the principal balance of the home loan and ends up costing the borrower more in the long run as interest charges are assessed on that unpaid interest. Most student loans also have a deferred interest period while students are in college and for a short while after graduation.

Most lenders, including credit card companies and retailers, are betting that consumers don’t pay off the promotional balance in full so they can rake in added interest fees.

Which Cards Charge Deferred Interest?

Credit card companies — especially store credit cards cobranded with banks — are notorious for offering special financing deals that use deferred interest. Some of the biggest culprits include Amazon, Bed Bath and Beyond, and The Home Depot.

For instance, Amazon promotes an exclusive 6-, 12- or 24-month financial deal to those who sign up for the Amazon Store Card. However, you must scroll down to find the fine print that explains how the deferred interest works and how that interest will be charged on the account from the purchase date if the balance is not paid in full within the deferred interest period.

Amazon Store Card Promotional Financing Terms

Meanwhile, The Home Depot Store credit card offers six months of deferred interest financing on purchases of $299 or more. Though this can help you finance a big home project without interest, failing to completely pay off the balance at the six-month mark means you will be responsible for paying interest from the day you made the purchase.

It’s not just store credit cards that charge deferred interest. In fact, the same WalletHub study mentioned earlier found that 91% of all deferred interest credit cards are issued by three banks: Synchrony, Citi, and Comenity.

How to Avoid Deferred Interest Charges

In addition to paying off a deferred interest loan or a deferred interest credit card to avoid the accrued interest, other ways to get around these retroactive interest fees include:

Find a 0% APR card without deferred interest: Plenty of credit cards offer 0% APR on new purchases and never charge deferred interest. You just need to do a little research and read the fine print before applying. Here’s a look at the best 0% APR cards.

0% INTRO APR RATING

★★★★★
4.8

OVERALL RATING

4.8/5.0
  • Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening.
  • Earn unlimited 1.5% cash back on all other purchases.
  • Earn 5% on travel purchased through Chase, 3% on dining at restaurants and drugstores, and 1.5% on all other purchases.
  • No annual fee.
  • 0% Intro APR for 15 months from account opening on purchases, then a variable APR of 14.99 - 23.74%.
  • No minimum to redeem for cash back. Cash Back rewards do not expire as long as your account is open.
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% Intro APR on Purchases 15 months
N/A
14.99% - 23.74% Variable
$0
Good/Excellent

0% INTRO APR RATING

★★★★★
4.8

OVERALL RATING

4.8/5.0
  • One-time $200 cash bonus after you spend $500 on purchases within 3 months from account opening
  • Earn unlimited 1.5% cash back on every purchase, every day
  • No rotating categories or sign-ups needed to earn cash rewards; plus, cash back won't expire for the life of the account and there's no limit to how much you can earn
  • 0% intro APR on purchases for 15 months; 15.49%-25.49% variable APR after that
  • Pay no annual fee or foreign transaction fees
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% for 15 months
N/A
15.49% - 25.49% (Variable)
$0
Excellent, Good
Chase Freedom Flex℠ Review

at the issuer'ssecure website

0% INTRO APR RATING

★★★★★
4.8

OVERALL RATING

4.8/5.0
  • Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening.
  • Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories each quarter!
  • Earn 5% on travel purchased through Chase, 3% on dining at restaurants and drugstores, and 1% on all other purchases.
  • No annual fee.
  • 0% Intro APR for 15 months from account opening on purchases, then a variable APR of 14.99 - 23.74%.
  • No minimum to redeem for cash back. Cash Back rewards do not expire as long as your account is open.
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% Intro APR on Purchases 15 months
N/A
14.99% - 23.74% Variable
$0
Good/Excellent

Consider the purchase carefully: Many of these special financing deals entice shoppers to buy more than they can afford with the prospect of making smaller, interest-free payments. However, you should fully consider the total cost and terms of the financing offer before applying. Ask yourself if you can really afford to pay the balance off in full before the promotional period is up.

Transfer the remaining balance: If you’re up against the deferment deadline but are still carrying a balance, consider transferring the remaining balance. In fact, you may qualify for a new credit card that offers 0% APR on balance transfers. Just make sure to review the terms on the new card and pay it off in full before that introductory period expires since you may not qualify for yet another balance transfer.

U.S. Bank Visa® Platinum Card Review

at the issuer'ssecure website

0% BALANCE TRANSFER RATING

★★★★★
4.8

OVERALL RATING

4.6/5.0
  • For a limited time, get a special 0% introductory APR on purchases and balance transfers for 20 billing cycles, then a variable APR applies
  • Enjoy Cell Phone Protection Coverage when you pay your monthly cellular bill with your U.S. Bank Visa® Platinum Card
  • View your credit score anytime, anywhere in the mobile app or online banking. It's easy to enroll, easy to use, and free to U.S. Bank customers.
  • Fraud Protections detects and notifies you of any unusual card activity to help prevent fraud
  • Choose your payment due date
  • $0 Annual fee
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% for 20 billing cycles
0% for 20 billing cycles
14.49% - 24.49% Variable
$0
Excellent Credit

0% BALANCE TRANSFER RATING

★★★★★
4.7

OVERALL RATING

4.8/5.0
  • Earn cash back twice! Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases.
  • To earn cash back, pay at least the minimum due on time
  • Balance Transfer Offer: 0% intro APR on Balance Transfers for 18 months. After that, the variable APR will be 13.99% - 23.99%, based on your creditworthiness. Balance Transfers do not earn cash back and will have a fee of either $5 or 3% of the amount of each transfer, whichever is greater.
  • If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including balance transfers) by the due date each month.
  • 24/7 access to customer service representatives
  • $0 annual fee
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
0% for 18 months
13.99% - 23.99% Variable
$0
Excellent/Good
Wells Fargo Platinum Card Review

at the issuer'ssecure website

0% BALANCE TRANSFER RATING

★★★★★
4.6

OVERALL RATING

4.6/5.0
  • Introductory 0% APR offers for 18 months from account opening on purchases and balance transfers (balance transfer fee applies), then a variable APR applies
  • Account protection features such as Zero Liability protection for promptly reported unauthorized transactions, alerts, and cell phone protection
  • My Money Map – tools to help you manage spending and create a budget with ease
  • Access to your FICO® Credit Score with Wells Fargo Online®
  • Overdraft Protection by linking your credit card to your Wells Fargo checking account, finance charges apply
  • $0 annual fee
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
0% for 18 months
0% for 18 months
16.49% - 24.49% Variable
$0
Good

Double down on payments: Most deferred interest loans come with a monthly repayment schedule, but this may require you to walk a fine line. Missing just one monthly payment could mean you’re on the hook for high interest charges when that deferment period is up and can cause damage to your credit score. Therefore, making double payments when your budget allows and paying off the loan balance early will avoid unnecessary interest fees.

Pay a large lump sum: Paying attention to the deferment expiration date is key to avoid any interest fees. Jot it down on a calendar or add an alert in your smartphone to help you stay on top of the deadline. When you notice that the interest-free deferral period is about to expire, make a large payment to bring the balance to $0 so you don’t get slapped with deferred interest charges. Even carrying a balance of just $0.01 can send your bill soaring with interest fees.

Pay on time: Many deferred interest offers become void if you make just one late payment. That’s why it’s crucial that you pay at least the minimum payment required on time each month. Set up auto-pay when available or set reminders of approaching payment dates in your phone’s calendar to avoid this potential pitfall. This will also help protect your credit score.

Pay with cash: Financing deals always come with a catch. The best way to avoid deferred interest is to avoid borrowing money in the first place. Paying with cash is your ticket to staying out of debt and building wealth. When you pay with dollar bills, you can’t spend more than you make, so it will keep you on budget and keep fees at bay.

Consider Your Ability to Repay the Debt

Though the money-saving prospect of a 0% interest rate on a credit card purchase is appealing, consumers should do their homework and read the fine print. Don’t let these deferred interest offers persuade you to spend more than you can afford. Fully consider the terms and your ability to pay off the deferred interest balance in full before additional interest kicks in.

Ultimately, you should only purchase items you can pay off in full immediately. Otherwise, you could end up in over your head with mounting fees when that promotional period expires and you owe more than your initial purchase price.

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