From CardHub 2014 Deferred Interest Study:

Often advertised with bold tag lines stating “0% Interest for 12 months” or “Special Financing,” these plans sound great but the fine print reveals how financially disastrous they can be since the regular rate applies retroactively to the entire original balance if you do not pay in full by the end of the promotional period, or you make a late payment, no matter how much of the balance you have already paid back.

Here is an example that they provide to show the impact of deferred interest on your purchase:

Suppose you open a new credit card in order to buy a couple of big-ticket items on your kids’ Christmas list – a laptop and a bicycle totaling $800, for example.  If you choose a traditional credit card that offers 0% on new purchases for six months and charges a 20% regular interest rate and you miss your payoff goal by one month (paying off your total balance in seven months instead of six), you’ll pay $2 in interest. However, if you choose a card that offers deferred interest, you’ll not only pay 27.5 times more interest (i.e. $55), easily eradicating any Black Friday deals you might have scored, but it will also take you an additional month to become debt free.

Might be an interesting activity to have the students research a specific retailer and “read the fine print” to see the language around this sneaky financing arrangement.

Which retailers are the sneakiest?  Check out their infographic to see who has been “Naughty or Nice.”

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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