What is Deferred Interest? – The Points Guy

At TPG, we strongly believe in the importance of paying off your credit card balance in full each month to avoid paying interest. However, we understand that there may be situations where you need to make a large purchase and can’t pay it off right away. In these cases, credit cards with promotional offers of 0% APR can be a useful tool to help you manage your finances.

Deferred interest is a practice where any money you borrow on a credit card will not accrue interest charges for a set period of time. Technically, interest still accrues from the first day of purchase, but you won’t be required to pay the interest as long as you pay off the entire balance within the promotional period. For example, if your credit card offers deferred interest on purchases for six months, a purchase of $2,000 will have to be paid in full before the end of the six months to avoid interest charges.

To identify a deferred-interest offer, credit card issuers will use language such as “no interest for 12 months” or “no interest if paid in full.” However, it is crucial to read the offer details carefully, as failing to pay off the balance within the promotional period can end up costing you more in the long run.

There are several benefits to deferred-interest plans. They are usually easier to qualify for than a new credit card, making them accessible for those with fair or poor credit. Deferred-interest plans are often offered by electronics, home improvement, and other types of stores, allowing consumers to finance large purchases. The main benefit is the potential to save money by eliminating interest charges on the purchase, as long as the balance is paid in full before the promotional period ends.

However, there are also disadvantages to deferred-interest plans. One downside is the possibility of receiving retroactive interest charges if the entire balance is not paid off within the promotional period. This means that you will be responsible for interest dating back to the date of the original transaction. Additionally, deferred-interest plans can come with high interest rates, which can be even more burdensome if the balance is not paid in full.

To avoid paying deferred interest, it is important to create a plan to pay off your balance each month and set up automatic payments to avoid missed payments and late fees. It is also crucial to make more than the minimum payment required by the lender, especially for larger balances.

In conclusion, deferred-interest offers can be a useful tool for managing large purchases, but it is important to read the terms and conditions carefully and have a plan to pay off the balance. If any balance remains after the promotional period ends, you will be responsible for all of the interest accrued since the first day of purchase. By understanding the benefits and pitfalls of deferred interest, you can make informed decisions about when and how to use this financing option.

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