Store Credit Cards Labeled ‘Last Resort’ by Money Expert for One Big Reason
Written by
Ashley Donohoe
Edited by
Daria Uhlig
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When making a major purchase, you might turn to store credit cards for convenient financing. While they often come with no-interest promotions and purchase discounts, they can also have costly catches, such as deferred interest, that should make you reconsider signing up. “Deferred interest should be a last resort,” WalletHub founder and CEO Odysseas Papadimitriou cautioned in an interview with CNBC Make It.
Why Deferred Interest Offers Are Risky
At first glance, a deferred interest promotion can resemble the popular 0% introductory financing offer you see with regular credit cards. The deal is that you won’t pay any interest on your purchase as long as you pay it off by the promotion’s deadline, such as 12 or 18 months. However, there’s a major catch: retroactive interest.
If even a small portion of your balance remains after that deadline, the creditor can charge interest on the whole original purchase — not just your remaining balance. This can also happen if you fall behind on payments during the promotional period.
Since store cards usually have high rates, often exceeding 30%, this surprise interest can significantly hurt your finances.
Can Deferred Interest Financing Still Make Sense?
Papadimitriou recommended looking into other financing options before considering a deferred interest offer. For example, you might qualify for a regular 0% interest credit card offer. You could also just wait and save up the cash needed.
But since you could potentially get interest-free financing, deferred interest promotions may make sense when you have no doubts about wiping out the balance by the deadline and staying on top of your payments. You’ll want to carefully read the offer’s fine print so you know what could disqualify you and leave you with a costly surprise.
If you apply, plan your payoff strategy since your minimum payments likely won’t leave you with a zero balance by the end of the promotional period, the Consumer Financial Protection Bureau warned. You should also try to avoid additional card purchases and make sure your payments are applied to the deferred interest purchase. Automatic payments are also recommended.
Beware of Other Store Card Drawbacks
Retroactive interest is just one of the several pitfalls that come with store credit cards. You’ll often only have a small line of credit and pay a high interest rate on everyday purchases. These cards and their perks usually only work at the specific retailer. Additionally, they can encourage overspending, especially if the store offers rewards or coupons.
When using these cards, watch your spending and try to keep your credit utilization below 30%. You should also consider paying your balance in full each month to avoid expensive finance charges.
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