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Deferred-interest loans

A ticket to free financing or too good to be true?

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A deferred-interest loan comes with the promise of free financing if you can repay your loan before the promotional period ends — usually within a year. But make sure you understand all of the terms and conditions before you sign up. Misunderstanding the rules could mean you'll end up paying more than you expected.

What is deferred interest?

Deferred interest is interest that doesn’t start accumulating until after a promotional period. Usually this runs from 6 to 12 months on loans — and usually up to 9 months on credit cards.

Deferred interest is most common when you sign up for in-house financing on a big-ticket item. You’ll find these loans at retailers, doctor’s offices or hospitals and car dealerships — and they’re particularly popular around the holidays. 

Banks, credit unions and online lenders typically don’t offer these kinds of deals.

Is deferred interest the same as a 0% APR offer?

No, a deferred-interest loan is not the same as a true 0% APR loan. This also applies to credit cards that have a 0% promotional offer. A 0% APR loan would never charge interest or fees at any point in time.

How does deferred interest work?

Deferred interest works by holding off on interest during a promotional period — typically 6 to 12 months. If you pay off the loan during that period, you won’t pay any interest at all.

But once that period ends, interest starts to add up. How this works depends on your contract. Usually, deferred-interest loans come with higher rates than you’d find on most personal loans. It’s not uncommon for deferred interest rates to top 20% — closer to what you’d pay with a credit card.

Can you still end up paying interest?

Yes, if you don’t repay the loan in full by the end of your promotional period, you will pay interest on the remaining balance. At the very least. 

Some deferred interest contracts will charge retroactive interest — as if you had been charged interest from the day you took out your loan. Making a late payment or otherwise violating the contract can also trigger interest in some cases. Don’t sign up for a deferred-interest loan without fully understanding the terms and conditions.

Does deferring interest hurt your credit?

A deferred-interest loan won’t hurt your credit score if you make repayments on time. Even if you don’t fully repay the loan before the promotional period is up, it can still improve your credit by adding to your history of on-time repayments.

But if you don’t budget for a repayment that includes retroactive interest, you might miss multiple repayments and damage your credit. Don’t count on repaying the loan before the promotion is up. Get an estimate of the cost after that period to avoid missing a repayment and damaging your credit.

See personal loan options without deferred interest

Use the table below to compare lenders that don’t offer deferred interest on their loans. Select your credit score range and state to find out which lenders you might qualify with.

Data indicated here is updated regularly
Name Product Interest Rate Max. Loan Amount Loan Term Fees Min. Credit Score Link
Mogo Personal Loan
9.90% – 47.42%
$35,000
9 months – 5 years
NSF fee – $20 – $50
540

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Mogo offers loans up to $35,000 on flexible terms.
Loans Canada Personal Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$50,000
3-60 months
No application or origination fees
300

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Loans Canada connects borrowers to lenders offering both secured and unsecured personal loans in amounts from $300 to $50,000. Submit one application to get rates from multiple lenders across Canada.
Fairstone Personal Loan (Unsecured)
26.99% – 39.99%
$20,000
6 months – 5 years
None
560

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Fairstone offers unsecured personal loans up to $20,000
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 10.00%-46.96%
$50,000
3-60 months
No application or origination fees
N/A

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LoanConnect is an online broker that matches borrowers to lenders offering loans in amounts from $500 to $50,000. Get approved for multiple loan offers from different lenders in as little as 60 seconds with any credit score.
Magical Credit Personal Loan
19.99% – 46.80%
$20,000
6 months – 5 years
A single administration fee of $194 for $1,500 loans and up
300

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Magical Credit offers unsecured personal loans in amounts up to $20,000.
Cash Money Installment Loan
46.93%
$10,000
6 months – 5 years
Vary across provinces/territories
560

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Cash Money offers installment loans up to $10,000 for AB, MB and NB residents.
LendDirect Personal Loan
19.99% – 46.93%
$15,000
No end dates
None
560

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Borrow up to $15,000, based on your income and credit history, with a personal line of credit from LendDirect.
LendingMate Personal Loan
43% (British Columbia and Ontario) and 34.90% (Quebec)
$10,000
1-5 years
None
300

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LendingMate offers loans to Canadians with poor credit with no credit checks. Co-signer required for application.
Fairstone Personal Loan (Secured)
19.99% – 23.99%
$35,000
3-10 years
Varies by province
560

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Fairstone offers secured personal loans up to $35,000.
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Pros and cons of deferred interest

Deferred interest might seem like all benefits at first glance. But there can be some major drawbacks. Here’s how you can benefit from these loans — and why you might want to stay away.

Pros

  • Potential interest-free loan. Repay it before the promotional period is up — according to the terms and conditions — and you’ve got yourself interest-free financing.
  • Easy financing. In most cases, deferred-interest loans are available at check out when you’re paying for your big ticket item.
  • Manage expensive purchases. Like any loan, deferred-interest financing breaks up a big ticket item like a car into more manageable repayments.

Cons

  • Potential retroactive interest. In some cases, you could end up paying interest on the original balance of the loan.
  • Typically higher rates. While rates on your average personal loan hover around 10%, interest on these loans can be 20% or higher.
  • Few opportunities to compare options. Deferred-interest loan offers are often presented at checkout — when you might not have the chance to compare other deals.

Bottom line

A deferred-interest loan can be better than it seems — and it’s a risk. Even if you think you can pay off the loan within the promotional period, there’s a chance something will happen that will affect your future income.

If you don’t pay it off before that 0% APR period is up, then you could end up paying more than you would have with a regular personal loan. Before you apply, compare our top picks for personal loans to see if you can find a good deal without that risk.

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