Beware of “deferred Interest” Promotions
When you’re making a large purchase , the promise of “no interest if paid in full” as part of a deferred interest promotion can seem incredibly attractive. However, these promotions come with a major catch that can cost you dearly if you’re not careful.
How deferred interest shares work
With a deferred interest promotion, you will not be charged interest during the initial period, which typically lasts 6-24 months. However, interest is still accruing during this time. If you pay off the entire balance before the end of the promotional period, you will not owe any interest.
But if there is at least $1 left in your balance at the end of the promotion, you will be charged all deferred interest starting from the original purchase date. Depending on the size of the purchase, this retroactive interest could add hundreds or even thousands to your total bill.
How to Avoid the Deferred Interest Trap
Before you sign up for the deferred interest promotion, make sure you understand the terms and plan to pay off the entire balance before the 0% period ends. Consider setting up automatic payments to ensure you don’t miss a deadline.
Also take a look at alternative financing options that may provide better terms:
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Credit cards with an introductory 0% APR . They do not charge interest for the initial period, but do not retroactively charge deferred interest if you have a 0% balance at the end of the period.
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Loans secured by real estate . They use your home’s equity as collateral, providing a lower interest rate that remains fixed during the repayment period.
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Personal loans . An unsecured personal loan will have a fixed interest rate and payment schedule, avoiding the pitfalls of deferred interest.
The convenience of deferred interest promotions can easily backfire, leaving you with much higher costs than expected. Explore all financing options before making a large deferred purchase to avoid any unpleasant surprises.