Beware of Deferred Interest on Store Credit Card Accounts
A number of retailers will offer attractive introductory rates to entice people to sign up for their credit cards, especially during the holidays. These cards with a 0% APR for a period to time–usually from six to twelve months–can be very tempting.
But some of these retail credit cards have a hidden and costly gotcha: deferred interest.
If you do not pay off your balance in full during this introductory period, you could be forced to pay what is known as deferred interest. This means you will have to pay the APR for your entire credit card balance during the introductory period, even if you only owe a $1 when the intro period ends.
Let’s say you go Christmas shopping and rack up a $500 bill on your credit card. In your 12 month intro period, you manage to pay back $450 of the balance. When the intro period expires, you may not be charged interest on just the $50 that remains. You may have to pay interest on the $500 as if it had been accumulating over the last 12 months. This can be a significant penalty and shock to your wallet.
According to a recent study, 42% of retailers defer interest on their store credit cards. In addition, 41% of those stores are not transparent about this practice.
Before you go on a spending spree with your 0% APR intro offer, carefully read the terms and conditions of the store’s credit card offer. Make sure you can pay off your balance when the introductory period ends.