Is deferred interest a good idea?

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Some credit cards, especially retail or store credit cards, give consumers the opportunity to defer interest for a limited period of time. These deferred interest credit cards can help you finance a large purchase, but they come at a cost. If you don’t pay off the charges before your deferred interest period ends, your deferred interest bill will come due—and you might end up owing a lot more interest than you realize.

How does deferred interest work? What is a deferred interest credit card, and how is it different from a 0 percent intro APR credit card? Let’s take a close look at what deferred interest means, how you can identify a deferred interest plan (because these cards often don’t explicitly advertise this way) and whether signing up for a deferred interest credit card is ever a good idea.

What is deferred interest?

Deferred interest is exactly what it sounds like—the opportunity to defer interest on a purchase for a set period of time. But the responsibility to pay the interest is simply postponed, not wiped out. Unfortunately, many people don’t realize that if they don’t pay off their purchase in full before the deferred interest period ends, all of the accumulated interest will be added to their credit card balance.

Deferred interest credit cards rarely advertise themselves as such. Instead, you might see an offer like “No interest for six months”—and the deferred interest plan will be buried in the credit card’s fine print. That’s why it’s always important to understand a credit card’s terms and conditions before completing the credit card application.

How does deferred interest work?

What does deferred interest mean? Deferred-interest financing is not the same thing as interest-free—and it’s not the same thing as a 0 percent intro APR credit card. With a deferred-interest credit card, the interest begins to accrue from the beginning of the loan. If you pay off the charges in full within a set period of time, the interest is forgiven. If you don’t, the entire accumulated interest is added to your balance.

Carrying a balance after your deferred interest period ends isn’t the only way to get stuck with an unexpected credit card bill. If you miss a payment on a deferred interest credit card or pay late, your issuer will often end your deferred interest period immediately and add any accumulated interest to your balance.

That can quickly increase your debt, as the interest rate on deferred interest credit cards is often significantly higher than the average credit card interest rate, which is currently around 16 percent.

It’s also worth noting that some deferred interest credit cards only defer interest on certain types of purchases—the first purchase you make on the card, for example, or any purchases over a certain dollar amount. Other purchases made to the card will begin accruing interest immediately, and these charges may be subject to a different (often higher) APR.

To understand how your deferred-interest credit card works, read your credit card agreement very carefully—that way, you won’t be surprised by any interest charges.

What happens if I don’t pay my balance in full?

If you have a deferred interest credit card and you don’t pay your balance in full by the time the deferred interest period ends, your credit card issuer can charge you interest on your remaining balance. What’s more, the interest you owe will be calculated from the day you originally made the charges.

This is the big difference between a deferred interest offer and a 0 percent introductory APR offer. With a 0 percent intro APR card, any purchases and/or balance transfers you make on the card won’t begin to accrue interest until the intro APR period is over. With a deferred interest credit card, your purchases start to accrue interest as soon as you make them. You won’t owe any of that interest until the deferred interest period is over, and you won’t owe any interest at all if you pay off your balance in full before the deferred interest period ends—but if you don’t pay your balance in full, you run the risk of owing more interest than you can handle.

How to make the most of deferred interest

If you want to make the most of a deferred interest credit card, you need to pay off your balance in full before the deferred interest period ends. Since any balance remaining on the card after the deferred interest period ends will accrue all of the interest accumulated during the deferred interest period, it’s to your advantage to get those charges paid off before you have to pay interest on them.

If you have a deferred interest credit card that lets you defer interest on a single purchase while allowing you to make new purchases on the card, be aware that your credit card payments may be applied to the new purchases first. If you only make minimum payments or partial payments on your credit card, you might not pay off much of your deferred interest balance. This means that you could end up owing a lot of interest on that balance once your deferred interest period ends.

To make the most of your deferred-interest card, make sure your payments are large enough to cover both your deferred interest balance and any new purchases. That way, you won’t be surprised by an unexpected interest bill—and you won’t end your deferred interest period in credit card debt.

Should I get a retail store card that offers 0 percent APR?

If a retail credit card offers “no interest for six months,” be sure to read the fine print. Does the credit card actually give you six months of 0 percent APR, or is the card simply giving you the opportunity to delay interest for six months?

If the retail credit card comes with a true 0 percent intro APR offer, it could be a good deal. On the other hand, if that retail card is a deferred interest credit card, it’s probably not worth it. Retail credit cards have notoriously high interest rates to begin with, and if you aren’t able to pay off your balance before the deferred interest period ends, you could get stuck with a hefty credit card bill.

Yes, store credit cards occasionally offer significant discounts on purchases, but that doesn’t mean you should sign up for a deferred interest plan. If you want to save money at popular retailers like Target, Walmart and Amazon, consider one of the best cards for online shopping instead.

Is deferred interest a good idea?

A deferred interest credit card is rarely a good idea. Yes, you’ll be able to defer interest on your purchases for a certain amount of time—but if you don’t pay off those purchases in full by the time the deferred interest period ends, you could end up owing a lot more interest than you were anticipating.