Deferred Interest In Credit card, how does it work? It is a common feature in a store credit card offered by retailers, lets you make charges and avoid paying interest if the balance is paid in full before the special-financing period expires. The challenge with deferred Interest promotion is that if you don’t pay off the balance in full promptly, you’ll have to pay the interest for the entire special financing period.
What is Deferred Interest
What is Deferred Interest? Well, it means you can borrow money, and the interest that you owe would get delayed for some time (not absolved). It is only when your balance is paid off by the end of the promotional grace period that you can forgo paying the interest that you have been accruing from the original date of purchase.
How does Deferred Interest Work?
Deferred interest loans and credit cards are quite the standard at retailers that sell products that are expensive like appliances, electronics, and furniture. A lot of businesses trot out these offers during the holidays when consumers might just be tight on cash while shopping for their loved ones, featuring marketing phrases like “no interest for about 12 months” or “same as cash.”
Deferred interest loans can be really enticing seeing as you would not have to pay interest for a set term, whether it’s six months or two years. But if you fail to pay off the whole balance by the end of the offer period, or if you do not make the payment on time, you would be on the hook for all the interest that started accruing on the full balance from the day you signed.
Let’s take an example. Say you need a new refrigerator. You can pay $1,800 upfront or take the store’s deferred interest offer with “no interest for about 24 months” and a 25.99 percent regular APR. If you make a payment of $75 each month for 24 months, you can repay the balance and avoid the interest charges.
But what if things do not go as planned and you were not able to repay during the promotional term? In that case, you would suddenly see an extra $767 or so added to your balance – all the interest that you have gathered during this offer period
How Does Deferred Interest Offers get Crucial
Deferred Interest seems like a great deal on the surface. You get to divide up the heavy cost of that refrigerator or set of tires you need across, say, 12 months, without paying interest thereby making your purchase much more affordable.
The most relevant term of a deferred Interest offer is the time frame of payment that you owe. If you don’t pay off the balance in full before the deferred financing period ends, the full cured interest that the lender was keeping tabs on can get applied to your account.
You usually have to make at least your minimum payment on time to avoid the risk of losing the deferred Interest benefit. Typically, if a payment is more than 60 days late, the period of interest may expire and leave you on the hook for the full interest accrued.
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Credit Card companies are required to first apply any monthly payment amount over your required minimum to the balances on your card with the highest interest rate. So any payment amount over your minimum monthly payment would be applied first to any nondeferred-interest balances that come with higher APRs.
Minimum Payment Calculation
For example, your card only offers deferred Interest financing on your first purchase. If you make any additional purchases on the card, those purchases will be subject to the higher regular purchases APR. You then have to make your monthly payment in an amount greater than the minimum due, the extra amount would go toward your regular purchases balance rather than your deferred Interest balance. This will leave you with a higher interest balance to pay at the end of the promotion.
Note that, there’s an exception in applying pays to higher APR balances. During the last two billing Cycles of the special-financing period, any payment above the minimum is applied to the deferred interest balance.
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How To Avoid Getting Charge with Deferred Interest
To Avoid deferred Interest is straightforward- you just have to follow through on the exact terms of the offer, including paying off the balance in full before the promotional period expires. This is a simple way of calculating how much you need to pay off each month to avoid having deferred Interest applied to your account.
Divide the balance you are owing on your card by the number of billing cycles remaining before your deferred Interest period expires. The smallest results amount you’d have to pay each billing cycle to pay the balance off in full before the promotion period expires.
What to do if you can’t pay off the Balance Before Deferred Interest is set in?
Life can be challenging, what if something comes up and you cannot pay up your full balance before the special-financing period expires? Here are two options for your convenience:
If you won’t meet up with your payment, or if you’re going to miss the deferred Interest deadline, consider transferring the remaining balance to another credit card through a balance transfer before it ends. Depending on the terms of your card. This offer of balance transfer often comes with a fee.
A personal loan offer, more savings on interest than you’d pay with the typical high-interest rate on a store card. Watch out for the interest rate fees, and ensure that it’s not higher than what you’ll pay when the deferred Interest begins.