5 Things You Should Know About Deferred Interest

what is deferred interest

Deferred interest is when no-interest loans or credit cards have some period of zero interest. However, you still owe interest payments if you cannot pay off the balance before the end of the stated time frame. Answering the question “what is deferred interest?” from the beginning is important, or you may pay a lot more than you expected. The following are some of the most important things you should know about deferred interest.

1. Deferred Interest Can Hurt Your Credit

The effect of deferred interest to your credit is similar to traditional financing. If you defer interest, it continues to accrue even though you don’t owe it if you pay off the balance on time. If you fail to make the payments or make late payments, your credit will be hurt just the same. 

Even when a credit card or loan is not being charged interest monthly, you still need to make minimum payment towards the debt. Keep this in mind if you took on deferred interest intending to delay to pay for it. 

In addition to your credit’s possible harm, some lenders may choose to end the deferral time before time and charge you full interest. It could make matters worse. You should only take out a deferral payment when you are sure of your ability to make payments on time before the interest payments kick in. 

2. It Isn’t Always a Good Idea

One of the biggest shortcomings of deferred interest is that it can mislead customers into believing that they can afford to make purchases, which would otherwise be too expensive. Even though they can be valuable, they are not always a good idea. The following are some of the most important precautions to take:

Read the Fine Print

Ensure that you read the fine print to be sure of what you are agreeing to. You should know what happens if you are late or fail to make a payment before the end of the promotional period. 

Don’t Buy the Offer

Make sure that you are not just buying because of the offer. The marketplace is competitive, and it is common for business people to use deferred interest promotions to stand out from competitors. If you would not normally buy something, do not buy it just because of the promotion. 

Commit to Repayment 

Come up with a repayment plan to ensure that you do not lose track of your payments. Once you have a plan, stick to it, and make the necessary adjustments. 

3. Most Major Issuers Don’t Charge Deferred Interest

Credit cards from most of the top issuers do not charge deferred interest. However, co-branded cards may be able to do it. Go through your cardmember agreement’s terms and conditions and look for the terms “no interest if paid in full,” “deferred interest,” or “retroactive interest.” 

4. You Can Avoid Deferred Interest Charges

If you wish to use special financing offers with deferred interest terms, there are a few ways to avoid interest charges and setbacks. They include:

Paying in Full Before the End of the Special Financing Period

Try to make significant payments towards your debt at the end of every month. Your goal should be to have no balance left at the end of the promotion. Your payments should be above the minimum all through the special financing duration. 

Track Your Progress

Check your progress before the end of the special financial period. Make sure that you remain on track to have no balance left at the end of the promotion.

5. Deferred Interest Cards Allow you to Pay Off Large Purchases

Cardholders with deferred interest can pay off big purchases over time, and they don’t need to pay interest. They only need to pay off the balance before the end of the payment duration. If you fail to make the payment within the stated time, you will pay its full cost plus interest. You only get to save money if you pay attention to the rules.

If you need help with your credit score, consider seeking the help of SmartCredit. It is a top player in credit score and protection. Our team can help you stay in control of your future credit score. With ScoreTracker and other tools, it is possible to gain some insight into your score. We can help you come up with a 120-day plan* to take charge of your accounts. We can offer the following extra services for a small fee: Money Manager, Credit Monitoring, 3B Report & Score, and $1MM ID Fraud Insurance. It is a great way for people to maintain control of their credit scores and promote financial literacy. If you need help, contact us today, and we will be happy to help. 

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References:

  1. https://www.cnbc.com/select/what-is-deferred-interest/
  2. https://www.nytimes.com/wirecutter/money/credit-cards/what-is-deferred-interest/
  3. https://www.investopedia.com/terms/d/deferredinterest.asp
  4. https://www.consumerfinance.gov/ask-cfpb/i-got-a-credit-card-promising-no-interest-for-a-purchase-if-i-pay-in-full-within-12-months-how-does-this-work-en-40/
  5. https://www.forbes.com/sites/nickclements/2017/11/20/4-reasons-deferred-interest-credit-cards-are-a-trap/#36ffc9a0583d

 

what is deferred interest

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