This holiday shopping season, if a retailer offers you a financing deal that sounds too good to be true, it probably is.
That's the takeaway of a new report from financial website cardhub.com warning against deferred-interest payment plans, calling them potentially "financially disastrous."
Deferred interest generally works like this: Upon signing up for financing, perhaps in the form of a store credit card, purchasers may be offered a plan that would eliminate interest for a set amount of time. But there's a catch. If they don't pay everything off by the end of the zero-interest period, or if they make a payment more than 60 days late, then the interest rate can apply to the entire balance.
"Even if you only have five dollars left to pay off, that interest rate, which can sometimes be like 30 percent, will apply to the whole balance no matter how much you have left to pay," CardHub spokeswoman Jill Gonzalez said.
"A lot of these retailers really, really hide that fact," she said. "They want you to see the 0 percent interest part and that's it. They don't want you to realize that maybe six months down the line you're going to be making these retailers a lot of money."
Chi Chi Wu, an attorney at the National Consumer Law Center, warns shoppers to stay away from the plans altogether, even if they consider themselves responsible enough to handle the risk.
"People may plan to pay it off, but life happens, and they might lose their jobs, they might have an unexpected medical expense," Wu said. "They're now going to be stuck paying this retroactive interest."
If a shopper can't pay cash, Gonzalez and Wu both said finding a traditional credit card would be a better option. Those can offer low introductory interest rates without the deferred-interest snag.
"If it's a purchase that's discretionary try to put it off and pay cash," Wu said. "[Or] try to find a true 0 percent deal, not one that's deferred interest, but a mainstream credit card that really does give you 0 percent for a year."
That's the takeaway of a new report from financial website cardhub.com warning against deferred-interest payment plans, calling them potentially "financially disastrous."
Deferred interest generally works like this: Upon signing up for financing, perhaps in the form of a store credit card, purchasers may be offered a plan that would eliminate interest for a set amount of time. But there's a catch. If they don't pay everything off by the end of the zero-interest period, or if they make a payment more than 60 days late, then the interest rate can apply to the entire balance.
"Even if you only have five dollars left to pay off, that interest rate, which can sometimes be like 30 percent, will apply to the whole balance no matter how much you have left to pay," CardHub spokeswoman Jill Gonzalez said.
"A lot of these retailers really, really hide that fact," she said. "They want you to see the 0 percent interest part and that's it. They don't want you to realize that maybe six months down the line you're going to be making these retailers a lot of money."
Chi Chi Wu, an attorney at the National Consumer Law Center, warns shoppers to stay away from the plans altogether, even if they consider themselves responsible enough to handle the risk.
"People may plan to pay it off, but life happens, and they might lose their jobs, they might have an unexpected medical expense," Wu said. "They're now going to be stuck paying this retroactive interest."
If a shopper can't pay cash, Gonzalez and Wu both said finding a traditional credit card would be a better option. Those can offer low introductory interest rates without the deferred-interest snag.
"If it's a purchase that's discretionary try to put it off and pay cash," Wu said. "[Or] try to find a true 0 percent deal, not one that's deferred interest, but a mainstream credit card that really does give you 0 percent for a year."