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With the average shopper expected to spend roughly $830 this holiday season, credit card debt on the rise, and 54% of people unaware how a common financing trick called deferred interest works, WalletHub released its 2022 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 pay in full by the end of the 0% period. 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, followed by commentary from WalletHub experts:
- Turning Consumers Off: 74% of people say deferred interest (a popular feature of 0% store cards) would cause them to view a store negatively.
- Financing Over Discounts: 58% of Americans are more likely to apply for a store credit card to get 0% financing than a store discount.
- Deferred Interest Confusion: 54% of people don’t know how deferred interest actually works.
- Illegal: 3 out of 5 Americans say deferred interest should be illegal.
- Major Retailers Still Offer Deferred Interest: The list of popular retailers that still use deferred interest includes Amazon, Best Buy and Home Depot, among others.
- Widespread Problem: 49% of store credit cards have deferred interest.
- Average First-Purchase Discount: The average store card with a first-purchase discount gives 17.50% off.
- Average 0% Intro Period: The average store credit card with a 0% intro APR has no interest for 15 months.
- Average Regular APR: The average store credit card has a regular APR of 28.76%.
Q&A with WalletHub
Do people know how deferred interest works?
“A new WalletHub survey found that 54% of people don’t understand how deferred interest actually works, which is a big problem during the holiday shopping season given how much we spend and how attracted we are to retailer financing offers. According to WalletHub research, 49% of store credit cards have deferred interest, which provides an eye-catchingly low introductory APR but will retroactively apply interest charges from the original purchase date at the regular APR if you don’t pay off your entire balance by a designated date,” said Jill Gonzalez, WalletHub Analyst. “Deferred interest can result in shoppers paying 27.5 times more interest than they expected.”
How do consumers who understand deferred interest feel about it?
“Three in five Americans think deferred interest should be illegal, which shows just how dangerous consumers think this sneaky financing arrangement can be,” said Jill Gonzalez, WalletHub Analyst. “Stores that use deferred interest risk losing some goodwill among shoppers. A new WalletHub survey found that 74% of people say they would view a store negatively for using deferred interest. Some of the biggest retailers that still use deferred interest include Amazon, Best Buy and Home Depot.”
Does it ever make sense to get a deferred interest plan?
“Taking advantage of a deferred interest financing offer can make sense in the right situation, which is good news for the 58% of Americans who are more likely to apply for a store credit card to get 0% financing than a discount on their purchase. Deferred interest financing can be worthwhile if it gives you a longer 0% introductory period than the best traditional 0% APR credit card you can qualify for, if you are absolutely sure you can pay off your full balance by the end of the intro term, and if you won’t miss any due dates along the way. A clearly defined payment plan can be very helpful in this situation,” said Jill Gonzalez, WalletHub Analyst.
Should people avoid store credit cards?
“Despite the prevalence of deferred interest financing plans among major retailers, people should not swear off store credit cards. The average store credit card with a first-purchase discount gives 17.5% off, according to WalletHub research, and the average store card with a 0% APR is interest-free for 15 months. The right store credit card can save you a lot of money, both during the holiday shopping season and beyond,” said Jill Gonzalez, WalletHub Analyst. “Store credit cards can be particularly beneficial for people with a relatively low credit score or a tight budget. Nearly all store cards accept applicants with fair credit and have $0 annual fees.”
Are store credit cards the best credit cards for holiday shopping?
“WalletHub’s picks for the best credit cards for holiday shopping include both general-purpose credit cards and store-affiliated offers. Store cards can save you a bundle on your first purchase, provide up to 5% back on normal purchases, and offer attractive yet sometimes treacherous financing options. General-purpose credit cards offer better financing deals and rewards capable of saving you hundreds of dollars wherever you shop,” said Jill Gonzalez, WalletHub Analyst.
