Survey Shows Several Deferred Interest Misconceptions

While the infamous “Black Friday” that officially kicks off the holiday shopping season may still be a few weeks away, many consumers are already making their lists and checking them twice. During this process, buyers might come across special “0% interest” offers, seemingly allowing them to finance big-ticket items without paying extra. However, as a new survey from WalletHub highlights, such deals might not be what they seem, with many actually offering what’s known as deferred interest.

Deferred interest is a practice where a retailer might offer 0% financing for a promotional period, such as “no interest for 24 months.” While consumers who pay off their purchases in the stated amount of time can escape interest charges, those who miss payments or who fail to repay their full balance before the end of the promotional period may not only be charged for future interest but may in fact also be on the hook for interest accrued retroactively. Unfortunately it appears that the majority of Americans aren’t aware of these important details.

First, 82% of those surveyed by WalletHub admitted that they didn’t know how deferred interest worked. Once informed, 81% said that the practice was unfair. Meanwhile 65% of respondents went a step further, stating that deferred interest arrangements should be illegal. Interestingly, despite those sentiments, it seems that consumers are split on whether 0% promotional rates can be good at all. While 59% said that such offers were the main draw of store credit cards, the same percentage stated that they’d rather forgo a low interest rate if they ran the risk of triggering deferred interest charges.

WalletHub also looked at retailers that currently offer deferred interest rate promotions, noting whether or not these brands were transparent about the details. Among those ranking highest in terms of the transparency of their offers were Apple, Menard’s, Sears, Staples, and others. On the other hand, Pottery Barn, West Elm, and Zales were ranked as these least transparent when it comes to deferred interest offers.

Offering insight as to why deferred interest continues to be popular yet misunderstood, WalletHub CEO Odysseas Papadimitriou noted, “The success of deferred-interest financing plans, from the perspective of the lenders and retailers that use them, depends on consumers not fully grasping what is expected of them or the ramifications of not abiding by those requirements. That’s the whole point.” Papadimitriou continued, asserting, “If consumers were well-educated on the dangers of deferred interest, more people would avoid such offers entirely or be especially careful to make their payments on schedule, and the business model would break down.”

As the holiday shopping season draws near, there’s no question that consumers will see an influx in deferred interest offers being peddled. Sadly, considering WalletHub’s findings, that might also mean that several Americans will find themselves saddled with interest debt they weren’t expecting. While it’s debatable whether deferred interest and similar tactics are ethical or should be legal, one thing’s for certain: consumers need to truly be aware of what they’re getting into with these “0% interest” deals. In other words: make sure you read the fine print.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

GGV Capital Unveils Inaugural Embedded FinTech 50 List

Today, an inaugural list of 50 startups were named the top FinTech innovators. This project was spearheaded by GGV, which has a long history of investing in major FinTech firms, having participated in funding rounds for the likes of Square, SoFi, Affirm, Karat, and many more. Additionally, the list was compiled with participation from top FinTech investors, such as Ribbit Capital, Sequoia Capital, Thrive, and others. In total, 57 VC...

Chase Aeroplan Card Unveils New 100K-Point Offer

With the summer travel season just around the corner, Chase and Air Canada have rolled out a new offer for their cobranded Aeroplan card. What's more, the card has added a new feature that gives cardholders another point redemption path. As we've seen from other issuers in recent years, the latest Chase Aeroplan welcome bonus is a tiered offer. First, new cardholders who spend at least $4,000 on their card...

FedEx Announces Launch of 2023 Small Business Grant Contest

Attention small business owners: FedEx has announced the launch of its 11th annual Small Business Grant Content. This year's promotion will officially kick off on January 31st, with the entry period lasting until February 21st. As part of the contest, more than $330,000 will be granted to small business, including $30,000 going to 10 grand prize-winning businesses. After the entry deadline has closed, 100 finalists will be selected and revealed...