Don’t Get Duped by This Controversial Credit Tactic

Credit allows us to shop now, and pay over time. The interest we incur on credit card debt, however, can make our purchases considerably more expensive in the long run. Deferred interest seems to offer the chance to skip interest altogether – but it comes with hidden costs. Here's the scoop:

What is deferred interest?

Deferred interest is a promotion frequently offered by retail credit cards. The concept is simple: pay the entire balance within a specified period and pay zero interest. 

On the surface, deferred interest seems like a win-win for retailers and consumers. It entices consumers to buy things they might not otherwise, without paying more over time. But like most things that seem too good to be true – there’s a catch. 

Many consumers assume they’ll only incur interest on their remaining balance once the special financing period ends. But this isn’t the case. Once the repayment window closes, you’re on the hook for everything.

How is deferred interest calculated?

If you don’t pay off your purchase in time, deferred interest plans charge you for the total interest you would have incurred during the promotional period. 

Say you buy a $2,000 television with a two-year zero-interest period, for example, but still have a few hundred dollars left at the end of the promotion. On your next bill, you’ll see a lump charge for the interest you would have paid over 24 billing cycles – dating back to the initial $2,000 balance. This could add several hundred dollars to your debt, which will then start incurring interest of its own. 

Common pitfalls of deferred interest

When used wisely, deferred interest can be a great way to save money on your purchases. But it’s important to be aware of several serious pitfalls. 

• Minimum Payments: Minimum payments are rarely enough to pay off an entire purchase within a deferred interest period. Plan on paying extra if you want to pay yours down on time. 
• Late Payments: You’ll typically need to make all payments on time to maintain your deferred interest plan. If something comes up and you fall behind, you could be on the hook for the total interest. 
• Long Payback Periods: Most deferred payment plans range from six to 24 months. This may feel like wiggle room, but if your financial situation changes it could be more challenging to pay your balance off in time. 
• High Interest Rates: Deferred interest plans often come with sky-high interest rates. In fact, if you miss your repayment window, they can cost more than just paying with a typical credit card.
• Dedicated Payments: Credit cards are required to apply any monthly payment above minimum to purchases with the highest interest rates. Unless you work with the card company, deferred interest purchases are the last to get paid down. 

Do deferred interest cards build credit?

Deferred interest plans can build credit like any other credit card purchase. But getting hit with a large lump sum charge at the end of a promotional period can make it harder to pay your debts responsibly – which risks harming your credit history. 

Are there secured cards with deferred interest?

If you're comparing secured vs. unsecured cards, you may be looking for something that offers a deferred interest period. Whether you choose a secured card or not, you'll most likely end up paying considerable interest in the long run as you continue to use the card. Rather than forking over the cash for a security deposit AND interest fees, look for ways to build credit without a secured credit card instead.

Learn more: Secured vs. Unsecured Credit Cards

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