Deferred interest credit cards are offered usually by retailers and they’re heavily pushed during the holidays. The benefits the consumers are offered, usually as they’re rushing to get out of the store, includes an interest free period. With promises of instant approval, it’s a deal many consumers can’t or don’t pass up. The problem is – those balances come due and if you don’t stick to the terms and conditions that you surely didn’t have time to read in the two minutes it took for the sales clerk to offer the card and for you to accept it, then you really don’t know what the repercussions are regarding your payments.
Many if not all, of these deferred payment credit card offers from retailers like Wal Mart, Home Depot and others, have very specific terms. For instance, if the offer allows you to pay your balance interest free for a specific period of time, if you don’t pay that balance off, your interest kicks in – and it kicks in for the original balance, not just the balance you owe. Unlike traditional credit cards with intro APR rates that allow a period of time that’s interest free and then once that expires, you pay interest on the balance due at that time and any new charges, these deferred payment cards are retroactive and pulls even the balance you’ve already paid down into the interest earning dynamic.
Unfortunately, these credit cards, because they’re offered at the most inopportune time for consumers, can become the Achilles heal of their finances. And now, some finance counselors are warning that even a small balance – as little as a few dollars – can mean they have massive finance charges that are suddenly tacked on. Miss that promotional period cut off, and there are simply no other options but to pay them. And if you’re wondering, that grandfathered interest is often at around 25% – even if you have good credit.
“Deferred-interest credit cards are one of the worst abuses” by credit-card lenders, said Chi Chi Wu, a staff attorney for the National Consumer Law Center, which in the past has pushed for a ban on deferred-interest cards. In these credit card agreements, consumers who buy, say, a few thousand dollars for a TV, computer and iPad, and if they reach the end of the courtesy period with $40 left owing, there exists the very real probability that their next statement will include several hundred dollars in finance charges. These aren’t new financial products, either. They’ve been around, actually, for many years. And there’s a reason for that –
These credit card offers, say analysts, allow retailers to keep big ticket items moving – especially during those crucial holiday months – while also allowing those consumers the opportunity to buy them with no money down. And these offers have gone digital too – online sites like Amazon are in on the deal these days.
Under the programs, a borrower who bought a $1,000 computer with one of these cards who has even just a few dollars remaining at the end of their deferred-interest period could conceivably wind up having to pay hundreds of dollars in interest charges.
There’s been a movement towards banning true deferred interest credit cards, but so far, there’s not been much progress made. In fact, many are questioning why these weren’t part of the recent new credit card laws. Plans now include urging the Consumer Financial Protection Bureau to propose new restrictions that would limit what banks could offer in terms of these financial products. CFPB says it has received many consumer complaints about these cards, but there have been no efforts to date to take action. That could be changing, though.
Meanwhile, lenders who push these credit cards say they’re giving consumers an opportunity to buy and then repay with no interest. It’s up to them to understand the terms of the loans. General Electric, which is one of the biggest companies to offer retail credit cards, insists it continues to work to ensure transparency in its guidelines. GE is the bank that offers Amazon, Wal Mart and some of the other biggest lenders of these products. It says, too, that with all of its monthly statements, it outlines those terms and conditions, including minimum payments that would have to be made in order to pay the balance before the interest kicks in. In fact, a spokesperson said that two months before the expiration of the interest free period the customer statements have additional notices that remind customers that time is running short. Plus, said the spokesperson, the “vast majority” of its customers pay the balances in full before the time runs out. Most offer 12 or 24 months of deferred interest, though it depends on the balance and the credit rating of the customer. If it does expire, GE charges 25.99% on the full amount that’s charged from the original purchase date.
Have you ever had a deferred payment account? What was your experience?