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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.
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Cards with deferred interest tend to include terms like “no interest if paid in full” within a certain amount of time or “if the balance is not paid in full by the end of the promo period […] interest charges will be imposed from the purchase date at the purchase rate.”
We explain what you need to know about deferred interest, including what it is, how to determine if your credit card carries it and how to avoid racking up these charges.
What is a deferred interest credit card?
Deferred interest, which typically is 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, not only will you be assessed interest charges on the remaining balance, but you will be responsible for all the interest that was waived during the promotional period.
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 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 on the remaining balance until it is paid off.
Do I have a deferred interest credit card?
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 Offers: No interest if paid in full within 6, 12 or 24 months. Interest will be charged to your Amazon Store Card account from the purchase date if the promotional balance is not paid in full within 6, 12 or 24 months respectively. Minimum monthly payments required.”
Amazon allows consumers the choice of financing items for either 6, 12 or 24 months. The Amazon.com Store Card comes with a regular purchase APR of 25.99% variable.
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.”
The card has an ongoing purchase APR of 26.99% variable.
How to avoid deferred interest charges
Deferred interest credit cards can be helpful since they 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 special financing period 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 may be 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 special financing period 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 about a 0% intro APR credit card instead?
Instead of a credit card that offers deferred interest charges, you may want to opt for a 0% intro APR card.
These credit cards allow you to carry a balance from month to month without paying interest anywhere from six to 20 months. If you have a remaining balance at the end of the promotional period, you will only be responsible for paying interest any existing balance — and not retroactively, as you would with a deferred interest card.
For example, the Chase Freedom Flex℠ card offers a 0% Intro APR on Purchases for 15 months. Once the promotional period ends, you will be subject to a regular purchase APR of 14.99% - 23.74% variable on any unpaid portion of the balance.
The information related to the Amazon.com Store Card and the Lowe's Advantage Card has been independently collected by LendingTree and has not been reviewed or provided by the issuer of these cards prior to publication. Terms apply.