If you’ve ever gone furniture shopping you know about Deferred Interest Credit Cards. Every store gives them a fancy name or passes them off as a normal credit card but they are VERY different.
A Deferred Interest Credit Card is best explained through a furniture purchase example. Let’s say you buy a sofa for $1,000 from XYZ furniture. They say “We have a promotion through XYZ Furniture with 24 months NO INTEREST if you sign up for our credit card.” This is an opportunity to qualify for a Deferred Interest Credit Card. More or less everyone qualifies, which is a post for another day!
The terms shake out as follows. The $1,000 is usually divided into equal payments which means you would pay $41.67 every month for 24 months. In other examples, you could have no payments for 24 months then pay the full $1,000 in the 24th month. If this all sounds too good to be true, it is and it isn’t, I will explain below.
These cards are incredible if you follow the payment terms to a tee, whether that be equal monthly installments or a lump sum payment at the end. Of course the finance companies that offer these cards are not here to simply allow you to purchase furniture for very little up front, they have to make money too which they do when you miss a payment.
Again, every card is different so we will continue with our XYZ Furniture example. If you miss a month’s payment of $41.67 they back-date the entire interest at something insane like 40% and here’s the kicker, they even charge it on the payments you already made! I have no idea how it is legal to charge someone interest on a debt they do not have but those are the rules.
The basis of this system is that the buyer can spend much more than they can ordinarily afford since the cost of the purchase is broken out over so many months or years. We have seen payment plans anywhere for 6 months all the way up to 60 months (5 years!).
Here are our three tips to make sure you benefit from these cards and the deferred interest aspect of them is never something you have to worry about.
- Read the terms of the credit card in the store before you agree to the plan. As stated above, every single store and card is different so DO NOT assume that since you signed up for one of these in the past it will be the same. If you don’t like the terms, don’t accept the card, just pay for the item that day or leave it over.
- Create your online account for the card after you receive the welcome information in the mail and set up autopay. The account will tell you what the minimum payment is so set it up and you will not be charged interest.
- Keep track of all of your long term purchases within Kabinet but most importantly keep a note within the upload detailing the payment terms in your own words so you remember what action you have to take at a given time. For example, if the terms are “No interest for 6 months with a minimum payment of $20 per month” make the note to say “Pay remaining balance of Synchrony account in full on July 16, 2023.
The situation where these companies really get you is when the minimum payments do not pay off your balance at the end of the term. The offers are always presented as zero interest of x many months but if the payments are only $20 you must pay the remaining balance on the final day otherwise they will back-date all of that interest.
If you use these cards and mess up the payments in ANY way you will live to regret going into this transaction. I, Terry CPA am advising you, be a knowledgeable consumer, understand what you are contracting yourself for and make sure you set up autopay for all payments to the credit card company.
If you follow this plan, these Deferred Interest Credit Cards are incredible and you will remain an “Above Average Homeowner.”
To ask me any of your specific questions, send me an email with “Terry CPA” in the subject line to firstname.lastname@example.org I am always here to help! No question is silly, I want to help you along your homeownership journey.