Consumer Trends

Many Americans Just Don’t Understand What Zero-Percent APR Actually Means

Beware of credit cards offering ‘deferred interest’

New market research from reveals a knowledge-gap on this often used ploy.

With the average shopper expected to spend almost $1,000 this holiday season, credit card debt on the rise, and 52% of people unaware how a common financing trick called deferred interest works, WalletHub today released its 2020 Deferred Interest Survey and its annual Store Credit Card Landscape Report in order to help people get the most out of retailer financing offers.

Deferred interest is when a retailer advertises a low introductory APR – often 0% – and gives a consumer the chance to pay for their purchases without interest, only to slam them with interest charges (as if the regular APR had been in place from the start) if they are unable to do so. This can result in a shopper spending up to 27.5 times more on interest relative to a normal 0% credit card offer. Please find key takeaways below, along with commentary from WalletHub (audio files included).

Key Findings:

  • 52% of people do not know how deferred interest works.
  • 74% of people who understand how deferred interest works think it is unfair; 61% think it should be illegal.
  • The list of popular retailers that still use deferred interest includes Amazon, Best Buy and Home Depot.
  • 56% of people say 0% financing is a bigger draw for a store card than a first-purchase discount.
  • 53% of store credit cards with 0% intro APRs have deferred interest.
  • The average store card with a first-purchase discount gives 18% off.
  • The average store credit card has a regular APR of 28%.
  • The average store credit card with a 0% intro APR has no interest for almost 18 months.
  • 99% of store credit cards have $0 annual fees. The average general-use credit card charges $19.49 per year.

A Q&A with WalletHub’s Jill Gonzalez On ‘Deferred Interest’

Is deferred interest more or less dangerous during the COVID pandemic?

Deferred interest is more dangerous during the pandemic because consumers are more likely to make the kinds of small mistakes that can trigger the deferred interest clause hiding behind a 0% APR teaser rate. Money is tight for a lot of people right now. Things are hectic for most of us. And holiday shoppers have certainly been known to spread themselves too thin. Distracted, cash-strapped consumers are the ideal victims for deferred interest.”

Deferred interest is more dangerous during the pandemic because consumers are more likely to make the kinds of small mistakes that can trigger the deferred interest clause hiding behind a 0% APR teaser rate...

Should deferred interest be legal?

Deferred interest is a shady, counterintuitive practice that depends on predatory surprise tactics to turn a profit. Simply put, it should not be legal. It is an extreme example of a bait-and-switch that many well-meaning companies have gotten rid of. Unfortunately, a lot of popular consumer brands still have not.

Why don’t more people know what deferred interest is or how it works?

The success of deferred-interest financing plans depends on consumers not fully grasping what happens when they don’t pay for a purchase in full by the end of the introductory period. If consumers actually knew about the dangers of deferred interest, more of them would avoid such offers entirely or be more careful to pay off their balance by the end of the introductory period, eventually causing this antiquated business model to break down.

Does it ever make sense to get a deferred interest plan?

It can actually make sense for a consumer to get a deferred interest financing plan as long as they know exactly what they’re getting into. But it should never be any shopper’s first choice. If you won’t qualify for traditional 0% APR financing, you may want to at least explore a deferred interest plan. But this could only save you money if you’re sure that you can make your monthly payments on time and repay your balance in full by the end of the introductory promotional period. The best way to do this is setting up automatic monthly payments from a deposit account with enough funds in it.

Should people avoid store credit cards entirely?

People shouldn’t just avoid store credit cards entirely simply because some of them utilize deferred interest. Store credit cards are great for earning rewards and discounts on everyday purchases at your favorite stores and then paying the bill in full every month. For example, the Target store card gives 5% back on all purchases, and the Kohl’s card gives 35% off your first purchase.