What is a deferred interest credit card?

Man using credit card reader at counter in motorcycle shopImage: Man using credit card reader at counter in motorcycle shop

In a Nutshell

With a deferred interest promotion, you can buy stuff on credit cards now, and not have to pay the accruing monthly interest until after the promo period ends. If you pay off your balance before the end of the promo period, you can avoid the interest altogether. But if you don’t pay off the card before the end of the intro period, all of the interest that’s accrued since Day One could get added to your balance.
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Deferred interest allows you to make purchases on a credit card without paying interest on the balance — for a while.

If you have a credit card with a deferred interest promotion, interest accrues on your balance every month. But the card issuer waives the interest payments during the promotional period.

If you pay the balance in full before the deferred interest period expires, you won’t be responsible for paying the interest. But if you don’t pay off that balance in time, not only could you end up paying the interest on the remaining balance, but you could end up on the hook for all the interest that accrued throughout the promotional period.

A deferred interest offer may seem like a good way to buy a big-ticket item you don’t have the cash to pay for upfront. But it’s not without its drawbacks.

Who offers deferred interest?

Deferred interest is often available from individual retailers. When you’re paying for your purchases and the cashier asks if you want to apply for a store credit card, many of them have deferred interest promotions.

The offer can seem especially appealing if you’re buying something expensive. After all, it’s like getting an interest-free loan until the end of the promotional period. If you can pay off your balance in full before the promo period expires, it may make sense to take advantage of the offer.

But it’s important to understand all the terms and conditions before you sign on the dotted line, so you don’t get stuck paying interest charges you didn’t plan for.

The trouble with deferred interest

Using a credit card with deferred interest may sound like a great way to buy an item you can’t pay for outright with cash. But there are several things you need to watch out for. Here are a few.

  • Full interest on your purchase: If you don’t pay the deferred interest balance in full before the promotional period expires, you could be responsible for paying interest on your total purchase, not just the remaining balance.
  • High interest rates: Credit cards aren’t typically known for having low interest rates. But the APR on deferred interest cards may be even higher than what credit card issuers are charging for other cards.
  • The fine print: Deferred interest offers often come with contingencies other than paying the balance before the promotional period expires. For example, late payments can also negate the deferred interest offer. Be sure you read the fine print and understand all the terms and conditions.
  • Payments over the minimum: Under federal law, credit card companies are required to apply monthly payments over the required minimum to balances with the highest interest rate first. If you pay more than the minimum due, your payment may not be applied to deferred interest purchases if other items on your credit card have a higher purchase APR. There’s one exception to this rule. If you pay more than the minimum during the last two billing cycles before the promotional period ends, your payment must be applied to the deferred interest balance.

Ways to avoid paying deferred interest

If you decide a deferred interest offer is too good to pass up, here are a few tips to help you avoid paying interest.

  • Plan ahead. Do the math before you make a purchase to ensure you can pay off the balance before the promotional period ends.
  • Have a backup plan. Even if you plan carefully and stick to your budget, sometimes the unexpected happens and you may not be able to pay off your balance in time. Think about what you’ll do if you find yourself in that situation, so you’re prepared. Will you get a side gig to earn some extra cash, transfer the remaining balance to a different card or maybe ask a friend or family member for a loan?
  • Make all your payments on time. Many deferred interest offers go out the window if you have even one late payment. Be sure to pay your bill on time every month.
  • Pay more than the minimum. It may be tougher to pay off the balance before the deferred interest period expires if you’re only making the minimum payments each month.
  • Choose another payment method. If you can’t delay your purchase and save up the cash to pay for it, there are alternatives to using a deferred interest credit card. For example, you could get a personal loan or open a credit card with a 0% introductory offer that doesn’t charge deferred interest.

How is a 0% APR offer different from a deferred interest offer?

It all depends on the terms of the card. Like deferred interest cards, credit cards with an introductory 0% APR on purchases don’t charge interest on them during the promotional period. They begin charging interest when the promotional period ends. But depending on your card’s terms, if you haven’t paid your promotional balance in full, you may be charged interest only on the remaining balance. You won’t have to pay interest on all the purchases made during the promotional period like you might with a deferred interest offer.

Bottom line

If you can pay your balance in full before the deferred interest period ends, it may make sense to get a deferred interest card. If not, it’s probably best to avoid a card with a deferred interest offer. If the purchase isn’t essential, waiting and saving up the cash might be hard, but it’s a sure way to avoid the pain of getting slammed with a sudden avalanche of interest charges. If it’s something that can’t wait, consider taking out a loan or using a credit card with a 0% introductory APR.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.