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GoodLifeStudio / Getty Images June 23, 2022 Tim is a freelance personal finance writer and blogger with a particular focus on credit cards and consumer lending. In 2002, he stumbled upon a copy of "The Millionaire Next Door," by Thomas J. Stanley and William D. Danko, which ignited a passion for learning and sharing fact-based money principles. Tim has a passion for demystifying personal finance and helping people live their best lives. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Terms apply to the offers listed on this page. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Bankrate logo The Bankrate promise
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Deferred interest means you can borrow money, and the interest you owe is delayed (but not absolved) for a period of time. It’s only when you pay off your balance by the end of the that you can forgo paying the interest that’s been accruing from the original date of purchase. By contrast, a only starts charging interest on any remaining balance at the . How does deferred interest work
Deferred interest loans and credit cards are standard at retailers that sell expensive products like appliances, electronics and furniture. Many businesses trot out these offers during the holidays when consumers may be tight on cash while shopping for loved ones, featuring marketing phrases such as “no interest for 12 months” or “same as cash.” Deferred interest loans are enticing because you won’t pay interest for a set term, whether it’s six months or two years. But, if you don’t pay off the entire balance by the end of the offer period, or if you’re late on a payment, you’ll be on the hook for all the interest that started accruing on the full balance from the day you signed. Let’s say you need a new refrigerator. You can pay $1,800 upfront or take the store’s deferred interest offer with “no interest for 24 months” and a 25.99 percent regular APR. If you pay $75 each month for 24 months, you can repay the balance and avoid interest charges. But what if life throws you a curveball — like a medical emergency or an unexpected loss of income — and you’re unable to repay the balance during the promotional term? In that case, you’d suddenly see an extra $767 or so added to your balance — all the interest that accrued during the offer period. Because the 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 vs 0% APR
The key difference between and deferred interest promotions is what the issuer does with the interest during and after the promotional period. While both options can potentially help you save money on interest fees, a 0 percent APR offer could provide the most savings. With 0 percent APR offers, the issuer doesn’t apply the regular interest rate to your balance until the no-interest period expires. Let’s say you charge $2,000 to a card with a 0 percent intro APR for the first 12 months. During the intro period, you’re able to pay $1,000 toward your balance. At that point, you owe the remaining $1,000 left on your balance, plus the interest that accrues going forward. With a deferred interest offer, on the other hand, you’ll have to pay interest that accrues on the remaining $1,000 moving forward as well as all the interest on the entire balance from day one. Pros and cons of deferred interest
As with any offer of credit, it’s wise to weigh the benefits and downsides of deferred interest offers to help determine if they’re a good or bad option for you. Pros of deferred interest
While it’s usually best to avoid deferred interest offers, they may be helpful in select circumstances: Easier to qualify. Deferred interest offers often have easier qualifications than many credit cards. If you have or and don’t qualify for better options, you might consider a deferred interest offer to fund an essential purchase like an air conditioning unit or a refrigerator — as long as you can repay the balance on time. Potential to save money. You could eliminate interest charges, but only if you’re certain you’ll be able to pay the entire balance before the promotional period expires. Cons of deferred interest
While deferred interest offers may be a convenient way to , they do come with some considerable downsides, including: Retroactive interest charges. If you don’t repay the entire balance before the promotional period ends, you’ll have to pay interest, backdated to the date of the transaction. High interest rates. The current is above 17 percent, with many of the offering ongoing interest rates between 12 percent and 24 percent on any remaining balance at the end of the promotional period. Deferred interest offers often come with interest rates exceeding anywhere from 25 percent to 29 percent. Fine print details. As with any credit card offer, you should always for any special requirements with a deferred interest offer. For example, the credit card company may include language in your agreement that voids the deferred interest offer if you submit a late payment. How to avoid paying deferred interest
Here are a few tips to help you avoid deferred interest charges: Do the math. Figure out each month to cover the cost of the deferred interest offer before the no-interest time frame is over. Set up automatic payments. Since many deferred interest offers may be negated with even one late payment, eliminate any room for error by setting up that post to your account before your monthly due date. Pay more than the minimum. If you purchase a big-ticket item with deferred interest, chances are your will not be enough to repay the balance in full before the promotional period ends. Consider an alternative payment method. If you don’t want to risk paying high-interest rates once the promotional period ends, consider using a or a credit card with a 0 percent introductory offer. Is deferred interest worth it
It’s generally best to avoid deferred interest offers in favor of safer options. Remember, if you’re late on a payment, or if you fall even one penny short of repaying your balance in full within the promotional period, you’ll be on the hook for significant interest charges. The regular interest rate on deferred interest rates is commonly 25 percent or higher. Unless you’re completely sure you can repay your full balance on time, these deferred interest promotional offers can backfire and cost you considerably. If you have to make a major unplanned expense, a or a low-interest personal loan could be a safer choice. The bottom line
Deferred interest credit cards are only a good idea if you can actually avoid paying the interest. Read the fine print to avoid any surprises, and repay the balance during the promotional period. If you can manage to pay more than the minimum, set up automatic payments and follow other strategic measures to prevent the shock of a credit card bill with a lump sum of deferred-interest charges, you’ll be on the right track. SHARE: Tim is a freelance personal finance writer and blogger with a particular focus on credit cards and consumer lending. In 2002, he stumbled upon a copy of "The Millionaire Next Door," by Thomas J. Stanley and William D. Danko, which ignited a passion for learning and sharing fact-based money principles. Tim has a passion for demystifying personal finance and helping people live their best lives. Related Articles