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Reading the Fine Print on My 0% Financing Plan Saved Me Thousands

Look out for this sneaky phrase before applying to avoid hefty interest charges.

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Robin Hartill

Key takeaways

  • Deferred interest financing plans start accruing interest right away on the original balance.
  • The only way to avoid paying interest on a deferred interest plan is to pay off the balance in full before the promotional period ends.
  • Consider another payment option if you think you may not be able to pay off the balance by the end of the promotional period of a deferred interest offer.

When my dog, Kermit, became gravely ill in 2022, I opened a Care Credit card to pay his vet bill of around $10,000. The promotional materials advertised several no-interest financing plans. 

But as I looked closer at the offer, I noticed four sneaky words: No interest “if paid in full within the promotional period. Here’s why those four words matter when you’re weighing the pros and cons of a credit card.

Why the words ‘if paid in full’ matter 

The words “if paid in full” are essential to look for any no- or low-interest credit card offer or financing plan. Essentially, if a credit card advertisement says “no interest if paid in full within 12 months,” chances are good that it’s charging deferred interest, rather than a temporary 0% APR.

A deferred interest plan is a financing plan where interest starts accruing immediately once you make a purchase, but you don’t pay any of the interest as long as you pay off the entire original balance before the promo period ends. 

If you don’t pay off every cent of that balance before the specified window ends, you get hit with interest on the entire original balance, rather than just the remaining amount. Deferred interest is common with medical credit cards, store credit cards and in-store financing.

For example, I’d financed about $10,000 on my new Care Credit card for Kermit’s vet bill and chosen the 12-month plan. Had I paid off $9,900 of my balance after 12 months, I would have owed interest not just on the $100 remaining, but on the entire $10,000 I’d financed. Considering that the Care Credit’s regular APY was 27.99% at the time, I would have owed more than $2,800 extra on any balance that lingered after 12 months. 

The interest piles on

If you don’t pay off a deferred interest plan before the promotional period ends, you’ll start accruing interest every month on your new balance, which includes the remaining balance plus all the interest you accrued on the original balance.

Deferred interest vs. 0% APR

There’s a big difference between deferred interest and an introductory 0% APR offer. With deferred interest, interest starts accruing right away and can be applied retroactively to the amount you financed. An introductory 0% APR credit card won’t charge you any interest for a given period of time, and then only on the remaining balance. 

If I’d charged $10,000 for Kermit’s care to a credit card with a 12-month intro 0% APR offer and paid off $9,900 after a year, I would have only paid interest on the $100 left on my bill, rather than the full $10,000.

When deferred interest does kick in, the APR is often significantly higher than regular credit card APRs. For instance, the average credit card APR is around 20.68%, according to CNET’s sister site Bankrate. APRs of 29.99% or higher aren’t unusual with deferred interest plans.

How to avoid paying deferred interest 

A monster interest payment isn’t inevitable if you use deferred interest financing. Here are some tips that can help you avoid a huge interest charge if you have a deferred interest financing plan or are considering one:

  • Make more than the minimum payments: The minimum payment with deferred interest credit cards and financing plans often isn’t enough to pay off the balance before interest starts accruing. Divide the balance by the number of months during your deferred interest period and budget for at least that amount. For instance, I’d financed a little over $10,000, so I paid at least $850 a month.
  • Late payments could end your deferred interest window. You probably know that late credit card payments can result in fees. But depending on the terms and conditions of your agreement, paying late can also result in owing all the interest that was deferred.
  • Check your bill for the exact date when your deferred interest period ends. The Consumer Financial Protection Bureau warns that deferred interest end dates don’t always line up with when your payments are due. Your bill must list the date the deferred period ends. Try to pay off your balance ahead of time to buy yourself wiggle room.
  • Avoid making additional purchases. Often, a deferred interest offer only applies to the initial charge. Additional purchases on the card may start accruing interest immediately, and your card issuer may automatically apply excess payments to the amount that’s accruing interest. One exception: In the final 60 days, the law requires that any payments above the minimum be applied to the deferred interest balance.

Alternatives to deferred interest financing

If you’re considering a payment plan with deferred financing, be sure you’ve also weighed these alternative options:

  • Introductory 0% APR credit card: Some of the best introductory 0% APR credit cards have promotional periods of up to 21 months. You may be able to get a no-interest window on balance transfers, new purchases or both. If you don’t pay off the balance in full when the interest-free period ends, you’ll pay interest on the remaining balance.
  • Personal loans: Personal loans often carry lower APRs than credit cards. If you don’t think you can pay off your balance before a deferred interest period ends, a personal loan might save you money in the long run.
  • Reduced interest plan: Some deferred interest plans also offer reduced interest plans that let you pay off your balance over a longer period. Again, this deferred interest alternative may make sense when you’re not sure you can repay a full balance before you’re retroactively charged interest.
  • Consider alternative ways to pay expenses. If you’re looking at a deferred interest credit card or plan to pay for medical, dental or veterinary expenses, consider alternatives first. Some healthcare providers or hospitals will let you negotiate a payment plan with them directly. Also, make sure you’ve contacted your insurance company (or your pet insurance company) to verify that the expense isn’t covered.

Is deferred interest a bad idea?

Deferred interest financing isn’t always a bad idea, but it’s important to be realistic about your budget and whether you can afford to pay off the full balance before the period ends. I didn’t wind up paying deferred interest on Kermit’s vet bill because I prioritized paying it off the balance before the 12-month promo period ended. 

Try to avoid deferred interest if the expense isn’t a necessity. If it’s an emergency medical expense, you may not have time to save money or explore all your financing options. But if it’s not essential, consider starting a sinking fund to save for a big expense instead of applying for a deferred interest plan.

If you owe money on a deferred interest credit card, consider a balance transfer credit card. You can use the time to work on paying down your balance. Plus when the 0% APR ends, you’ll only pay interest on the amount you still owe. But be aware that the cards typically charge a balance transfer fee, so factor that in when deciding if it can save you money.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

Robin Hartill is a Florida-based Certified Financial Planner and a longtime financial editor and writer. Her work regularly appears on The Motley Fool, Yahoo! Finance and Nerdwallet. Previously, she wrote the syndicated Dear Penny personal finance advice column. She is a graduate of the University of Florida.
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