What is deferred interest and how does it work?

Deferred interest is a financing offer where no interest is charged if you pay off the full purchase balance within a set promotional period. If you miss the deadline, you'll owe all the accrued interest retroactively.

Why should consumers be cautious about deferred interest offers from retailers like Best Buy?

Consumers should be cautious because if the balance isn't paid in full by the promotional deadline, steep interest rates (often 30%+) are retroactively applied from the purchase date.

What are better alternatives to deferred interest financing?

Zero-APR credit cards are a recommended alternative. They offer a promotional interest-free period, and interest only applies to any remaining balance after the promotion ends, without retroactive charges.

Home / Business and Economy / Holiday Shoppers Beware: Hidden Interest Costs

Holiday Shoppers Beware: Hidden Interest Costs

29 Nov

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Summary

Half of Americans misunderstand deferred interest offers.
Deferred interest can retroactively charge 30%+ APR.
Zero-APR cards are a better alternative financing option.

Holiday Shoppers Beware: Hidden Interest Costs

Deferred interest financing, frequently offered by major retailers during the holidays, is drawing criticism for its potential to ensnare consumers with high retroactive interest rates. This payment plan often promises no interest for a promotional period, but failure to pay the entire balance by the deadline can result in charges of 30% APR or more, as if the promotion never existed.

Recent studies reveal that approximately half of American consumers do not fully understand these deferred interest offers, with a significant portion deeming them unfair and even advocating for their illegality. Retailers often use these plans to encourage purchases of big-ticket items, sometimes downplaying the steep interest rates in fine print.

While deferred interest can be beneficial for consumers with excellent credit and clear repayment plans, it poses a significant risk for those with lower credit scores. Financial experts now highlight zero-APR credit cards as a more straightforward and safer financing option, where interest only applies to remaining balances after the promotional period ends, without retroactive charges.