Special financing offers on credit cards may seem like a great deal at first glance, but if you overlook the fine print you could be hit with hefty interest charges. Some credit cards charge deferred interest, which counteracts any savings you enjoyed during the interest-free financing period.
Deferred interest occurs when you continue to carry a balance after a special financing period ends. You incur a charge for all the interest you accrued since the date you made your purchase.
Below, CNBC Select explains how to check if your card charges deferred interest and how you can avoid these hefty charges.
How to tell if my credit card charges deferred interest
Credit cards from major issuers rarely charge deferred interest, however co-branded cards and stores cards often do.
You should check the terms and conditions of your cardmember agreement for deferred interest terms. These terms may also be displayed on the main landing page of the card issuer's website. Look for terms that state "deferred interest," "retroactive interest" or "no interest if paid in full."
For example, Amazon clearly states the deferred interest terms for the Amazon Store Card on the main page promoting the card — though it doesn't explicitly state the words "deferred interest."
Here's the language Amazon uses: "Special financing options are available on all orders of $150 or more. Pay no interest if paid in full within 6, 12, or 24 months as applicable. Interest will be charged to your account from the purchase date if the promotional balance is not paid in full within the promotional period. Minimum monthly payments are required."
If you quickly skim these terms, you may just see "pay no interest if paid in full within 6, 12, or 24 months as applicable," and skip over the next sentence warning about deferred interest. It's important to carefully read the terms of any special financing offer so you know whether there's deferred interest. After the special financing offers end, there's a 29.99% variable APR. Here are the current offers:
- 6 months on purchases between $150 and $599.99
- 12 months on purchases of $600 or more
- 24 months on select purchases
How to avoid deferred interest charges
While we recommend you avoid using special financing offers with deferred interest terms, you may still decide to take advantage of them. If you follow the tips below, you can avoid the potential setbacks of a deferred interest plan.
Pay your balance in full before the special financing period ends
Make sizeable monthly payments toward your debt throughout the special financing period with the goal of having no balance once the promo ends. Pay more than the minimum due and set up autopay or payment reminders.
Check your progress
A few months before the special financing period ends, check your progress to see if you're on track to have zero balance when the promo ends. If your cash flow changes, and you don't think you'll be able to pay off the card before the special financing period ends, consider a balance transfer credit card, such as the Citi Double Cash® Card. (see rates and fees.)
All of the cards listed on our best balance transfer credit cards roundup have no deferred interest terms. You can transfer debt before the promo period ends so you avoid deferred interest charges and get more time to pay off debt interest-free.
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