Pitfalls of Deferred-interest Credit Cards

January 09, 2013
Want to buy a pricey item but cash flow is tight? Viola, you are offered a deferred-interest promotion. Minimal payments or no payments -- and no interest for a year. What should you do?

If you are absolutely sure you can pay the balance within a year, you could consider it. If there is any chance you will not pay the balance on time, do not even think about buying the item at this time. If the balance is not paid by the end of the promotion period you will pay interest on the original amount that you charged and the parts you have paid off already. The interest rate could be as high as 25%.

According to Andrew R. Johnson of the Wall Street Journal the National Consumer Law Center wants a ban on deferred-interest cards.

Johnson goes on to say that General Electric Co., a provider of deferred-interest cards, states they are transparent about when the borrower needs to make payments and how much interest they have accrued if they don’t make the final payment on time. Plus, GE notifies the borrower two months before the expiration of the promotional period.

GE records show that the vast majority of the borrowers pay off their balance before the promotional ends.

If you decide you can pay off the balance on time, be sure to make payments each month that will ensure the balance is paid on time.

Have you used the deferred-interest credit card plan? Did it work for you? Where there any hidden charges or was the company completely transparent about the transaction?