December 6, 2017
It's that time of year again, as stores roll out their deferred interest payment promotions. You know the ones: “Buy now... with no interest until 2019!”
They sound good, but these "deferred interest programs" can have some serious downsides.
"It's zero percent interest for one year, if you pay the entire balance off by the end of that year,” said Chi Chi Wu with the National Consumer Law Center (NCLC). “If you don't interest is actually been accruing in the background the whole time. You'll get hit with a big retroactive interest payment at the end of the promotion period, if you don't pay off every last penny of that balance."
And that interest – often 24 to 29 percent – is charged on the entire purchase price, not just the remaining balance. On a big ticket item, that could cost you hundreds of dollars.
NCLC gives this example: Buy a $2,500 piece of jewelry this week with a one-year deferred interest plan and have any money left on that account in a year, you’ll get hit with a $400 interest bill. Also, making minimum payment will NOT pay off the balance in full by the end of the no-interest term and you will get hit with interest.
And consider this: Making just the minimum payment each month won't pay off the balance in time.
"So we generally recommend that consumers stay away from these deals,” Wu said.