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Deferred interest deals and store credit cards could cost you big time

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Holiday shopping doesn’t need to break the bank.

As shoppers scramble to take advantage of seasonal deals, there’s one offer you probably don’t want to jump on.

Store credit card deals may sound like a steal. However, beware the fine print that can cost you more than you bargained for, according to recent research from personal finance website WalletHub.

Watch for terms like “0% interest” or “special financing.” That’s because after the initial offer, those low introductory deals can become much more expensive — including retroactive interest on your initial balance.

For example, if you buy an $800 TV and have a $20 balance when a six-month introductory offer runs out, you will be charged interest on the entire $800 purchase.

“That extends the timeline you had thought that you would be paid off by that much longer,” said Jill Gonzalez, senior analyst at personal finance website WalletHub.

WalletHub found that shoppers can spend as much as 27.5 times more on interest with deferred-interest deals compared with a 0% credit card.

What’s more, 82% of respondents in a survey said they do not know how deferred interest works.

The lending practice is very common among retailers. WalletHub found that 88% of store credit cards with 0% offers are deferred-interest deals.

And many of the brands are familiar household names such as Apple, Amazon and Best Buy.

“You have to have a plan and really keep track of automated payments … to be done by the time that six months is up,” Gonzalez said of the deferred-interest deals. “Or else, it’s almost like that promotion never existed, because you wipe away any of the savings that you had.”

If you’ve decided to go ahead and open a new line of credit, a traditional credit card is often better, Gonzalez said. That is because they typically offer longer time periods for 0% interest and lower annual percentage rates once those offers expire.

More from Personal Finance:
This holiday, give the gift that keeps on giving: money
7 last-minute financial moves to make before year end
Why this ‘rule’ about credit card use could be costing you

The average store credit card has a 28.86% APR, according to WalletHub. In contrast, the average credit card APR for individuals with good credit is 20.94%.

Alternatively, many retailers offer store cards with additional same-day discounts, which are usually better deals than special financing, Gonzalez said.

If you do decide to sign up for a deferred-interest deal, the key is to make sure you thoroughly understand it. Be familiar with the fine print, the terms of the introductory offer and how interest will be charged, Gonzalez said. And most of all, have a plan to pay the balance off.



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