What is Deferred Interest?
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Credit cards that offer introductory interest-free periods and special financing options may seem like a quick and easy way to finance new purchases. But they sometimes also carry the risk of deferred interest charges. This means if you continue to carry a balance after the intro or special financing period ends, you will be hit with all the interest that would have accrued since the date you made your purchase — which can get very expensive.
Here’s what you need to know about deferred interest, including how to determine if your credit card carries it and how to avoid it.
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What is deferred interest and how does it work?
Deferred interest, which is typically a promotion tied to store credit cards, allows cardholders to carry a balance from month to month without paying interest for a specified period of time.
If you don’t pay the credit card balance in full by the end of the promotional period, you will likely be responsible for all the interest that was waived during the promotional period, plus on any balance remaining.
For example, let’s say you purchase a sofa for $1,200 using a credit card that offers deferred interest for six months and an ongoing 22% APR (variable).
If you make payments of $200 each month for six months, you will not owe any interest payments, since the balance will have been paid in full within the promotional period.
However, if you don’t stick to the $200 a month payoff schedule and still have a balance at the end of the six months, you will be responsible for paying six months of interest — at an APR of 22% (variable) — on the original $1,200 you borrowed, plus be hit with interest charges on the remaining balance until it is paid off.
How is deferred interest calculated?
To calculate deferred interest, you divide the APR by 12 to get the monthly interest rate, then multiply that amount by the monthly balance to get the total monthly interest. You then add up the interest for each month of the promotional period to get your total deferred interest.
APR/12 = Monthly interest rateMonthly interest rate x monthly balance = Monthly deferred interestSo, let’s say you make a $2,000 purchase on a card with an ongoing APR of 24.99%. After making a $50 payment every month, you’ll be left with a balance of $1,700. You’ll owe a total of $228.04 in deferred interest.
Deferred interest paid on a $2,000 purchase ($50 monthly payment, 24.99% APR)
| Balance | Interest | |
|---|---|---|
| Month 1 | $1,950 | $40.61 |
| Month 2 | $1,900 | $39.57 |
| Month 3 | $1,850 | $38.53 |
| Month 4 | $1,800 | $37.49 |
| Month 5 | $1,750 | $36.44 |
| Month 6 | $1,700 | $35.40 |
| Total deferred interest | $228.04 |
Deferred interest vs. no interest credit card offers
Instead of a credit card that offers deferred interest charges, you may want to opt for a 0% intro APR card.
Like a deferred interest credit card, a 0% APR credit card allows you to carry a balance from month to month without paying interest for a specified time period (usually between six and 21 months). However, if you have a remaining balance at the end of the promotional period, you will only be responsible for paying interest on any existing balance — and not retroactively, as you would with a deferred interest card. Basically, with a 0% APR credit card, you don’t have to worry about incurring hundreds of dollars of interest if you don’t pay off the full balance by the end of the promotional period.
Here is a sampling of some popular credit cards offering intro 0% APR promotions. For a more comprehensive list of cards, check out our best 0% APR credit cards for long intro periods.
Side-by-side comparison of 0% intro APR cards
| Credit card | Best for | Intro APR on purchases | Regular purchase APR |
|---|---|---|---|
| Wells Fargo Reflect® Card | Long intro APR on purchases | 0% intro APR 21 months from account opening | 18.24%, 24.74%, or 29.99% Variable APR |
| Chase Freedom Unlimited® | Cash back rewards | 0% Intro APR on Purchases for 15 months | 20.49% – 29.24% Variable |
| The Amex EveryDay® Credit Card from American Express | Instant access to credit | 0% introductory APR for the first 15 months from the date of account opening. | 18.24% to 29.24% variable |
| Discover it® Student Cash Back | Students | 0% Intro APR for 6 months on purchases | 18.24% - 27.24% Variable APR |
How to spot a deferred interest offer
You can find out if your credit card charges deferred interest by scanning the terms and conditions of your cardmember agreement for the term “deferred interest,” “retroactive interest” or “no interest if paid in full.” The issuer may also include these terms in the fine print on the card’s landing page.
For example, the Amazon.com Store Card, which charges deferred interest, states the following on its landing page:
“Special financing options are available on purchases of $150 or more.”
- Six months on purchases between $150 and $599.99
- 12 months on purchases of $600 or more
- 24 months on select purchases
The Lowe's Advantage Card, which also offers deferred interest, includes the following details on its special financing landing page:
“No Interest if Paid in Full Within Six Months: Offer applies to purchase or order of $299 or more on your Lowe’s Advantage Card. Interest will be charged to your account from the purchase date if the promotional purchase isn’t paid in full within six months. Minimum monthly payments required.”
How to avoid deferred interest charges
Deferred interest credit cards can allow you to pay off a large purchase interest-free. But if you aren’t able to pay off the balance within the promotional period, you risk incurring extremely high deferred interest charges, which defeats the purpose of the special financing offer.
The following tips can help ensure that you avoid paying deferred interest charges:
Pay your balance in full before the offer ends
This lets you benefit from the interest-free offer without being hit with deferred interest charges. Calculate what your monthly payments need to be in order to pay off the loan before the deferred interest payments kick in. Be aware that this amount will likely be much more than the minimum payment required by the issuer each month.
Pay your bill on time each month
If you fail to pay at least the minimum amount due each month — in addition to potentially having a negative impact on your credit score — the lender may end the deferred period prematurely and charge you the full amount of interest.
Keep spending to a minimum
Many credit cards that charge deferred interest offer various special financing options each time you make a qualifying purchase. The interest-free periods and ability to pay over time may tempt you to make numerous charges, which could cause you to fall into debt. Therefore, we recommend using special financing options sparingly.
Set a reminder two months before your offer ends
Once you have two months remaining, evaluate your balance to see if you need more time to pay off your debt. If you can’t afford to pay your balance in full before the special financing period ends — you may want to transfer the debt to a balance transfer card that offers a 0% intro APR period for more than a year and no deferred interest.
How to fight deferred interest charges
Credit card issuers can make errors when charging deferred interest. It is possible a payment was entered incorrectly, the recorded promotional period was inaccurate, or another error occurred that resulted in your bill reflecting the incorrect amount for your deferred interest charges.
Consumers have the option to dispute credit card billing errors, so if you feel as though your deferred interest charges are incorrect, you’ll want to start by contacting your credit card issuer. Send a certified letter with your name, address, credit card account number and description of the error to your credit card issuer, who will investigate your dispute.
