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Deferred interest credit cards: What are they?

Pay off a purchase interest free, but lose that value if you can't pay it off in time.

Deferred interest credit cards, also known as cards with special financing, is an option provided by retailer credit cards that lets you make purchases now and pay them off over time without interest. But deferred interest credit cards have a major and potentially dangerous difference in what happens should you fail to pay off your purchase compared to a standard 0% interest credit card.

How does deferred interest work?

A card with a deferred interest feature lets you buy eligible items and use an interest-free period of between six and 48 months. The fine print here is you get an interest-free period as long as you pay your purchase in full before the interest period expires. If you don’t pay off your purchase on time, you’ll be charged the interest you would have accrued on that purchase across the entire interest-free period in one lump sum. This can also happen if you don’t make your agreed upon payments on time, in which case you’ll be charged for interest that would have accrued up to that point.

For example: Let’s say you make a $2,000 purchase with a 12-month deferment period on a card with a 25% APR. You have 12 months to pay off that purchase interest-free. But if you fail to pay off that purchase in full, you’ll be charged 12 months of interest on that initial purchase amount.

$2,000 at 25% APR over 12 months = $286.24

That’s nearly $300 of interest charged directly to your account on top of anything you haven’t already paid off. And if you couldn’t pay off your initial purchase on account of financial hardship, an extra $300 on top can make your financial situation even worse.

Drawbacks to deferred interest credit cards

Although deferred interest is a convenient way to pay off your large purchases, there are major drawbacks to consider.

  • May accrue interest if not paid in full. Read the card’s terms and conditions as some retailers may require you to pay the full interest from the day you made the purchases if you don’t pay off your balance in full before the interest period ends.
  • High-interest rates. Aside from the deferred interest options, other purchases may accrue high interest if not paid in full before the due date.
  • Higher minimum payment. In most cases, you will have to make a certain minimum payment each month, which is often higher than the standard 1% to 3% other credit cards offer.
  • May not use the card elsewhere. Since retailers are typically the ones who offer deferred interest credit cards, you may not be able to use the card elsewhere to make purchases.

Benefits of deferred interest cards

Used properly, a deferred interest credit card can still offer some decent value.

  • Repeated deferred interest financing option. With a 0% intro APR credit card, you get no interest on your purchases for a limited time only. Deferred interest is usually offered repeatedly. For example, once you pay off your balance, you can make another purchase and use the no-interest period again and again.
  • No annual fee. This type of card often costs nothing to own.
  • Store benefits. Other benefits include rewards on your purchases, discounts or free shipping.
  • Low credit score requirements. When credit cards are concerned, retailers are usually less picky than banks are. In many cases, you can get a store card with a poor or fair credit score.

Who offers deferred interest?

Retailers that offer store credit cards are often the ones who provide deferred interest on purchases made at their store. Here are some of the more popular deferred interest card options:

Deferred interest alternatives

If deferred interest sounds risky to you, there is the ideal option — a 0% intro APR credit card. These cards come with an interest-free period on purchases or balance transfers between six and 20 months. The great thing about this is that if you fail to pay off your balance before the intro period is up, you only accrue interest on any unpaid balance, not on the entire balance retroactively. This is much more forgiving on your bank account if you don’t pay off your purchase in time and if you act fast, you can minimize the damage.

Compare 0% intro APR cards

Blue Cash Everyday® Card from American Express

★★★★★

Finder Rating: 4.6 / 5

Terms apply, see rates & fees
Go to site

Minimum credit score

670

Annual fee

$0

Purchase APR

0% intro for the first 15 months (then 13.99% to 23.99% variable)

Balance transfer APR

N/A

Rewards

3% at US supermarkets on up to $6,000 per year (then 1%), 2% at US gas stations and select US department stores and 1% on all other purchases (redeem as statement credit)

Welcome offer

Up to $250: 20% back on Amazon.com purchases in the first 6 months for up to $150 back, plus $100 statement credit after spending $2,000 within the first 6 months

Citi Simplicity® Card

★★★★★

Finder Rating: 4.4 / 5

Go to site

Minimum credit score

670

Annual fee

$0

Purchase APR

0% intro for the first 18 months (then 14.74% to 24.74% variable)

Balance transfer APR

0% intro for the first 18 months (then 14.74% to 24.74% variable)

Rewards

N/A

Welcome offer

N/A

The bottom line

While getting a deferred interest credit card can be a nice way to put off paying interest, it can present risks if you’re not able to pay off your purchase in full by the time your no-interest period ends. For this reason, you might want to consider a 0% intro APR credit card instead. You can also compare other interest-free credit cards.

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