CardHub.com recently released the findings of their 2013 Deferred Interest Study, and the details may shock you. Their report explains that "deferred interest" is quite different from "0% interest."
"Suppose you open a new credit card to buy a couple of big-ticket items on your kids' Christmas list - a laptop and a bicycle totaling $800, for example. If you choose a traditional credit card that offers 0% on new purchases for six months and charges a 20% regular interest rate and you miss your payoff goal by one month (paying off your total balance in seven months instead of six), you'll pay $2 in interest. However, if you choose a card that offers deferred interest, you'll not only pay 27.5 times more interest (i.e. $55), easily eradicating any Black Friday deals you might have scored, but it will also take you an additional month to become debt free."
Some of the study's key findings revealed that many retailers participate in deferred interest financing options and are less than forthcoming about the details of these "deals."
- 70% of major retailers offer a financing option. The best deals come from retailers that do not use deferred interest, which include: Target, Nordstrom, and Gap. The worst deals come from retailers that not only offer deferred interest, but also are not transparent about their policies - a list that includes the likes of Pottery Barn, Amazon.com, Lowe's, and Macy's.
- Of the major retailers providing financing, 49% currently offer a deferred interest plan.
- Of those that currently offer deferred interest, 41% scored very low on our transparency scale (between 0 and 6 points) because they bury information about the deferred interest plans in footnotes or terms and conditions pages.
- Of those that currently offer deferred interest plans, 29% had complete and easily accessible information about the terms of their deferred interest plans on their websites. These retailers received a high transparency score (10 points).
- Pottery Barn had the lowest transparency score (0) with all key information about their deferred interest plan buried in very hard to find disclosures.
- Combined, Citi and GE Capital issue nearly two-thirds of the deferred interest credit cards (or cards that may offer deferred interest in near future), comprising 32% of the market each.
- Under a deferred interest payment plan, paying off your credit card debt one month behind schedule could increase your financing costs by more than 27 times.
- Despite not having a deferred plan themselves, several retailers offer the ability for consumers to make payments through PayPal, which offers a "Bill Me Later" deferred interest option.
To read the full report, click here.
As you make purchases this holiday season, be sure to avoid these dangerous deferred interest plans. If you do choose to utilize such a financing option, develop a payment plan that will ensure that you pay off on time, without garnering any retroactive interest! If you need help developing a plan or dealing with a deferred interest financing option you've already accepted, call us at (423) 490-5620! We can help you determine a strategy to deal with your debt.