How To Avoid Deferred Interest Payments | NerdWallet

What does it mean when you see a deferred interest offer? There's a critical distinction between a deferred interest offer and a 0% APR offer. If you're looking to make a purchase and you don't want to pay any interest, or you're at least trying to pay as little interest as possible, it's important you know the difference, because not knowing the difference could end up costing you a lot of money in interest charges down the road. Now let's start by talking about deferred interest offers. These are commonly advertised as no interest offers. And sure, if you pay off your bill in full by the end of the promotional period of that deferred interest offer, then sure, you won't pay any interest. But that's not often the case. These offers are typically made on things like store credit cards, and here's the problem. If you don't pay off your entire purchase in full by the end of that deferred interest offer period, you could pay a lot more in interest than you initially thought. With these cards, interest is silently being accrued in the background from the day that original purchase was made. And interest rates on these cards tend to be high. I'm talking about things like 20% or higher. Now even if you owe just a small amount of money, like $0.50 after that deferred interest offer has ended, what's going to end up happening is that you'll owe interest on the full amount. If the full original amount was high because let's say you bought a couch or a TV or something else that was quite expensive, the amount of money you'll pay in interest is the amount of interest that is accrued on the initial entire purchase, not just the couple of dollars of debt that you have outstanding. In contrast to the deferred interest offer is a 0% APR offer, which tends to be far more consumer friendly. With 0% APR offers, you won't start accruing interest until the end of that 0% APR promotional period, which typically is about three or six months. Let's say that you purchased a couch. It was $1,000 and you've paid off almost all of it by the time that 0% APR period ends, but you still owe, let's say, $100 left. With a 0% APR offer, you would only start to then accrue interest on that remaining $100 balance. In contrast with a deferred interest offer, even if you had $100 outstanding by the end of the promotional period, you would owe interest on that full $1,000, which as you can imagine can be quite a bit more. Just keep in mind that even with 0% APR offers, you must make at least the minimum payments and on time. Failure to do so can void that 0% APR promotional offer. 0% offers tend to be far more consumer friendly than deferred interest offers, but sometimes you don't have a choice. You might have already taken out that deferred interest offer and you're looking at what to do next. Or maybe it's the only offer that you're actually approved for. Sometimes you have an emergency expense like you need to replace an urgent appliance and you can only get approved for a deferred interest credit card. If that's the case, NerdWallet has some tips for what to do next. For starters, make a plan to pay off that full payment and make a plan to pay it off early. That way if something happens and you miss a payment and you get off track, at least you'll still have paid off that amount in full by the time that deferred interest offer expires so that way you don't get hit with interest charges. Secondly, don't add any more charges to that initial account. And thirdly, while paperless statements can be a good thing, here's one situation where they just might not be. Getting that physical statement in the mail each month can be a good reminder to make sure that you're being accountable and paying off that purchase. If all else fails, another thing that you can consider is applying for a balance transfer offer. If you're at the end of that deferred interest period and you still have money left over, it might make sense to transfer that balance to another balance transfer credit card. Now, NerdWallet typically doesn't recommend just moving balances on this carousel of balance transfer credit cards because they have their own pitfalls like transfer fees, but this might be one more option to consider. Check out my video on balance transfers to learn more about that.