At TPG, we believe in the importance of paying your credit card balance in full each month to avoid paying interest. However, we also recognize that there are times when it may not be possible to pay off your entire balance. In these situations, credit cards with promotional offers for a 0% annual percentage rate (APR) can be a helpful tool.
These promotional offers allow you to make large purchases and pay them off over time without accruing any interest on the monthly balance you carry over. This practice of putting off interest charges is known as deferred interest. In this article, we will explain what deferred interest is and how you can use it to your advantage while avoiding its pitfalls.
Deferred interest means that any money you borrow will not incur any interest charges for a set period of time. Technically, interest still accrues from the first day of purchase, but you won’t be required to pay the interest as long as you pay off the entire balance within the promotional period. For example, if your credit card offers deferred interest on purchases for six months, a purchase of $2,000 will have to be paid in full before the end of the six months to avoid interest charges that were accruing but deferred.
To identify a deferred-interest offer, credit card issuers will use language such as “no interest for 12 months” or “no interest if paid in full.” However, it is crucial to read the offer details carefully because if you fail to pay off the balance within the offer period, you may end up paying more in interest.
There are several benefits of deferred-interest plans. They are usually easier to qualify for than a new credit card, making them a good option for those with fair or poor credit. Additionally, deferred-interest plans can provide a financial cushion for large purchases, such as electronics or home improvements. The main benefit is the potential to save money by eliminating interest charges on your purchase if the balance is paid in full before the promotional period ends.
However, there are also downsides to deferred-interest plans. One major disadvantage is the potential for retroactive interest charges if the entire balance is not paid off before the end of the promotional period. This means you could be responsible for interest charges dating back to the date of your original transaction. Additionally, deferred-interest plans can have high interest rates, potentially even higher than the average credit card interest rate of 20%.
To avoid paying deferred interest, it is important to create a plan to pay off your balance each month. Set up automatic payments to avoid missed payments and late fees. It is also crucial to pay more than the minimum payment required by the lender, especially if you are paying off a large balance.
In conclusion, deferred-interest offers can be a useful tool for making large purchases without incurring interest charges if used correctly. However, it is essential to read the terms and conditions carefully and have a plan to pay off the balance before the promotional period ends. By doing so, you can take advantage of the benefits of deferred interest while avoiding its potential pitfalls.