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What is deferred interest on a credit card?

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    As the name implies, deferred interest offers postponed interest payments for a fixed period of time. It is more typically offered by store credit cards — and frequently at the time of checkout. Deferred interest may also be offered to help with car repairs and other unexpected expenses.

    With any shopping season, you may happen to drive to a big-box store to look for washers and dryers on sale. As you are contemplating the new appliances, an employee reminds you that the store not only offers free delivery and installation, but deferred interest financing if you sign up for a store credit card.

    How is deferred interest calculated?

    If charged, this type of interest will be calculated from day one and on the full amount. In other words, interest will go back to the purchase date and be added on top of the remaining balance. However, if the balance is paid off by the end of the promotional period, you will not owe the accumulated interest.

    How to tell if your credit card offers deferred interest

    The first place to look is your credit card’s terms and conditions, which come with the cardmember agreement when you receive your card in the mail. Store issued credit cards may also come with pamphlets that tell you about the promotional deferred interest offer. Deferred interest is commonly used by consumers to help finance big ticket purchases, such as new furniture or home appliances

    What are some alternatives to deferred interest credit cards?

    The following are some alternatives to using a deferred interest credit card from a store or a credit card issuer:

    • Build up an emergency fund to put as a down payment for non-deferred financing of major household purchases or car repairs
    • Apply for a line of credit from your bank or credit union
    • Take out a lower interest personal loan
    • Use a credit card with a promotional APR

    Deferred interest vs. 0% APR credit card and balance transfer offers

    When weighing a decision about whether to apply for a deferred interest card or 0% APR one, here are some differences between the two:

    Advantages of deferred interest

    • Zero interest as long as you pay off your entire promotional balance in full by the end of the promotional term
    • Can utilize store-offered financing when a credit card is unavailable at that particular store or its use for a major purchase would otherwise put you over your card limit

    Advantages of 0% APR credit card offers

    • You can transfer an existing balance to your new 0% APR card.
    • As long as you make the required minimum payments, you won't pay APR interest on the remaining balance during the promotional period.

    The bottom line

    Regardless of whether you choose deferred interest financing or a 0% APR offer to fund a large purchase, it’s important to have a plan for how you can pay off your debt in full before interest charges are due. Part of that plan should include paying more than the minimum each month and sticking to a budget that enables you to pay off the debt.

    Remember that the main difference between the two is how interest will be calculated if you don't pay your full balance by the end date of the promotional period. APR interest is calculated on the remaining, balance whereas deferred interest is accrued from the purchase date on the entire balance.

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