How do Deferred Interest Credit Cards Work?

Published by Alice

You’re walking through Walmart, and you see a TV you’ve been wanting. Wouldn’t it be nice to have that new TV? Luckily, Walmart offers you a free credit card to cover the cost of your TV with 0% interest for 12 months. Seems perfect! Now you can get a deferred interest credit card, buy your TV, and not have to worry about paying it off until later.

It seems great, but there’s a catch. Deferred interest credit cards can be dangerous to consumers if not used correctly. So, if you’re thinking about getting a deferred interest credit card, read up and know what you may be getting into!

What is a Deferred Interest Credit Card?

Deferred interest credit cards are advertised as free credit cards with 0% interest for a specified period of time that you can get on the spot. Many major retailers, including Walmart, Home Depot, and Best Buy, offer these credit cards to shoppers who want to to buy something but don’t have the money. These offers are incredibly enticing, because you automatically get approved and don’t have to pay until much later. Sometimes, you won’t have to pay for several years. It seems like a great way to get something you want now.

So What Makes Them Bad?

Although a deferred interest credit card sounds great in theory, any slip up in payment can result in massive amounts of debt. Many times, these credit cards have exponentially high interest rates and bad terms that may not be disclosed at the time of your purchase. Many consumers report being charged an average of 25% APR on the full amount of their purchase, including that on which they have already paid off. This is much higher than the APRs of normal credit cards. And even if you only have a couple dollars left to pay after the payment period, you will still be charged the full amount of interest, leaving you in a lot more debt. With a deferred interest credit card, there is no forgiveness for the debt.

One consumer reports being charged $1300 in interest for his $800 initial purchase. Like many other deferred interest credit cards, the original receipt did not specify the terms and conditions. So, when he received the bill, he was quite surprised. He was slammed with interest, unable to pay the bill, and left with a low credit score and a lot of debt.

This story is typical of consumers who buy deferred interest credit cards. As a result, many Consumer Reports, including the National Law Center, warn shoppers against deferred interest credit cards. Some have even lobbied the U.S. Consumer Financial Bureau to place a ban on deferred interest credit cards as an abusive financial practice. However, as of now, these credit cards are still in place.

Should I Get a Deferred Interest Credit Card?

If you are thinking about getting a deferred interest credit card, the first thing to do is research. Don’t fall for just any store offer. Make sure you understand the terms and conditions, and read the fine print before you sign up for anything. If you pay everything back within the payment period, a deferred interest credit card can be a helpful way to buy a product.

But if there is even the slightest chance that you may not be able to pay it back, there are other options for you. Many credit cards offer 0% financing for a set amount of time too, with much lower interest rates. Check out these no interest credit cards, and you won’t have to get stuck in a deferred interest debt cycle!

One Response to “How do Deferred Interest Credit Cards Work?”

Leonard @ The Wallet Doctor says:

March 1, 2014 at 3:07 pm

I’ve always been skeptical of these too-good-sounding-to-be-true cards. It seems like accepting a credit card without knowing the terms and conditions is always suspicious. Thanks for laying out the details of why they may not be the right decision for everyone!

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