Don’t Get Duped by This Controversial Credit Tactic

Lamine Zarrad
May 27, 2022
3 mins

Credit allows us to shop now, and pay over time. The interest we incur on credit card debt, however, can make our purchases considerably more expensive in the long run. Deferred interest seems to offer the chance to skip interest altogether – but it comes with hidden costs. Here's the scoop:

What is deferred interest?

Deferred interest is a promotion frequently offered by retail credit cards. The concept is simple: pay the entire balance within a specified period and pay zero interest

On the surface, deferred interest seems like a win-win for retailers and consumers. It entices consumers to buy things they might not otherwise, without paying more over time. But like most things that seem too good to be true – there’s a catch. 

Many consumers assume they’ll only incur interest on their remaining balance once the special financing period ends. But this isn’t the case. Once the repayment window closes, you’re on the hook for everything.

How is deferred interest calculated?

If you don’t pay off your purchase in time, deferred interest plans charge you for the total interest you would have incurred during the promotional period. 

Say you buy a $2,000 television with a two-year zero-interest period, for example, but still have a few hundred dollars left at the end of the promotion. On your next bill, you’ll see a lump charge for the interest you would have paid over 24 billing cycles – dating back to the initial $2,000 balance. This could add several hundred dollars to your debt, which will then start incurring interest of its own. 

Common pitfalls of deferred interest

When used wisely, deferred interest can be a great way to save money on your purchases. But it’s important to be aware of several serious pitfalls. 

  • Minimum Payments: Minimum payments are rarely enough to pay off an entire purchase within a deferred interest period. Plan on paying extra if you want to pay yours down on time. 
  • Late Payments: You’ll typically need to make all payments on time to maintain your deferred interest plan. If something comes up and you fall behind, you could be on the hook for the total interest. 
  • Long Payback Periods: Most deferred payment plans range from six to 24 months. This may feel like wiggle room, but if your financial situation changes it could be more challenging to pay your balance off in time. 
  • High Interest Rates: Deferred interest plans often come with sky-high interest rates. In fact, if you miss your repayment window, they can cost more than just paying with a typical credit card.
  • Dedicated Payments: Credit cards are required to apply any monthly payment above minimum to purchases with the highest interest rates. Unless you work with the card company, deferred interest purchases are the last to get paid down. 

Do deferred interest cards build credit?

Deferred interest plans can build credit like any other credit card purchase. But getting hit with a large lump sum charge at the end of a promotional period can make it harder to pay your debts responsibly – which risks harming your credit history. 

Are there secured cards with deferred interest?

If you're comparing secured vs. unsecured cards, you may be looking for something that offers a deferred interest period. Whether you choose a secured card or not, you'll most likely end up paying considerable interest in the long run as you continue to use the card. Rather than forking over the cash for a security deposit AND interest fees, look for ways to build credit without a secured credit card instead.

Learn more: Secured vs. Unsecured Credit Cards

With StellarFi, you can build credit without building debt

You don’t have to take on risky debt to improve your credit score. StellarFi helps you to build credit with the bills you pay already. Simply link monthly expenses like your rent, phone payment, and even your gym membership – and we report your positive repayment history to the credit bureaus. 

Signing up is easy. Start building credit today. 

The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

Related Articles

4 Ways for College Students to Build Credit Without Going into Debt

Establishing a strong credit history in college can set you up for financial freedom in the future. Here are 4 ways to build credit without building debt.

4 Ways for College Students to Build Credit Without Going into Debt

Establishing a strong credit history in college can set you up for financial freedom in the future. Here are 4 ways to build credit without building debt.

4 Ways for College Students to Build Credit Without Going into Debt

Establishing a strong credit history in college can set you up for financial freedom in the future. Here are 4 ways to build credit without building debt.

4 Ways for College Students to Build Credit Without Going into Debt

Establishing a strong credit history in college can set you up for financial freedom in the future. Here are 4 ways to build credit without building debt.

5 Strategies to Build Credit Fast

What can you do to build credit quickly? There are several strategies and tools you can use to establish new credit, or improve your credit score. Take a look at the top 5 ways to build credit fast.
Building Credit
3 minute read

How Young People Can Build Credit

When it comes to building credit, the best time to start is now! Here's how young people can build credit, what to do if you have NO credit, why it's important to build your credit, and more.

6 Mistakes People Make When Paying Down Debt

Paying down debt is a great way to boost your credit score and reduce costly interest payments. Try to avoid these common errors to make the process easier and faster.

How to Build Credit Fast (Even if You Have None)

Learning how to build credit fast can be confusing and overwhelming. Check out our helpful guide complete with explanations, tips, and tools to help you build credit, even if you have no credit score.

How Do Student Loans Affect Your Credit Score?

How do student loans affect your credit score? This resource takes a closer look at how student loans can help - or hurt - your credit history.

7 Consequences of Having a Low Credit Score

Meta: The consequences of having a low credit score are bigger than you may think. Here are seven ways a spotty history can cause friction in your daily life.

Why Am I Not Being Approved For A Credit Card?

Why am I not being approved for a credit card? If you’ve found yourself asking this question, one of these nine common credit denial reasons may be to blame.

How Long Does it Take to Build Credit from Nothing?

Are you one of the 16% of Americans without a credit score? Here's how long it usually takes to establish your credit, plus some tips to speed up the process.

What is the Lowest Credit Score You Can Have?

Many know that the highest credit you can earn is 850. But what is the LOWEST credit score you can have? This one might surprise you! Check it out.
Join our newsletter
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
By subscribing, you agree to our Privacy Policy and provide consent to receive updates.

On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.