They’re back – deferred interest payment plans. You know, “Buy now with no interest for 12 months or more!” It sounds like a no-brainer. Why pay interest?
Stores offer these deferred interest programs to encourage holiday shoppers to buy big-ticket items they really can't afford. They’re hoping the idea of no interest on that purchase will close the deal.
But keep in mind: This is not an interest-free purchase. Interest is still accruing, it’s just deferred. You won’t pay that interest, if you follow all of the rules. And that can be a challenge.
If for any reason you don't pay off the balance in full by the due date, you will be hit with that accrued interest from the time of the purchase – even on the amount already paid. And the interest rate will probably be in the neighborhood of 24 to 29 percent – significantly higher than the average credit card rate of about 15 percent.
The National Consumer Law Center did the math on the purchase of a $2,500 diamond necklace on November 25, 2017 using a one-year 24% deferred interest plan. It the consumer pays off all but $100 by November 25, 2018, the lender will add to the next bill nearly $400 in interest on the entire $2,500 dating back one year. Yikes!
Remember: If you only make the minimum payment each month, you won't pay off the balance in time. A lot of people don’t realize that.
Deferred interest payment plans can be risky, which is why consumer advocates, like the National Consumer Law Center give them a big thumbs down.