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As the holiday season approaches, one personal finance site is sounding the alarm about the ubiquitous retail payment plans that many Americans say should be outlawed.
This is called “deferred interest.” In a typical scenario, a shopper makes a large purchase with a store credit card. The retailer promises not to charge interest if the buyer repays the balance within the set deadline.
Problems begin if you fail to repay the full amount before the promotion expires. At that point, the deal falls through and the consumer ends up paying every penny in hefty deferred interest, often at an annual rate of 30% or more. It’s as if the promotion never existed.
About half of U.S. consumers don’t fully understand how deferred interest works, WalletHub reported in a Nov. 17 survey on deferred interest.
“There are a number of important things about these deferred interest proposals,” said Ted Rothman, senior industry analyst at Bankrate, a site that also tracks deferred interest. “Sometimes people don’t even understand what they’re signing up for.”
Many consumers who understand deferred interest think it is unfair. In a WalletHub survey, 51% of consumers said deferred interest should be illegal. The report examined financing options at 72 major retailers and analyzed a nationally representative survey of 200 consumers.
WalletHub has been studying deferred interest rates since 2012 and regularly alerts retailers offering loans and evaluates the transparency and candor of their loan offers.
“Fixed interest rates are a tool used by retailers to get customers to buy big-ticket items like big-screen TVs, washer/dryers, and refrigerator/freezer sets,” said Chip Lupo, a writer and analyst at WalletHub.
‘Bad’ list: Big retailers using deferred interest
WalletHub reports that many major retailers are using deferred interest in 2025. Among them are Best Buy, J.C. Penney, Home Depot, Guitar Center, Lowe’s, Michael’s, Pep Boys, Wayfair, and more.
According to WalletHub, some retailers downplay the high interest rates on deferred rate plans by printing them in small print or not prominently displaying them on loan documents.
That’s the “naughty” list. Here are some retailers that made WalletHub’s “best” list for avoiding deferred interest: Target, Kohl’s, Neiman Marcus, Barnes & Noble, Big Lots, Costco, BJ’s Wholesale Club, and Pottery Barn.
During the holiday period, deferred rate deals are often offered with claims like “No interest for 12 months” or “Just like cash”.
However, WalletHub advises that such sales pitches are misleading as interest remains high. If the buyer misses the payment deadline, all payments are due.
“If you miss a payment by one day or penny, all that interest will be applied retroactively to the date of purchase,” Lupo said.
Here’s how deferred interest works:
Imagine you buy a new refrigerator for $1,800 with a 24-month interest-free, 25.99% annual rate deferred rate offer.
If you can make monthly payments of $75 every 24 months, you should be able to pay off your balance in full and avoid interest.
However, if you miss a payment or two, you could end up paying an additional $900 in interest after 24 months. Calculations are taken from Bankrate, which provided the example.
“You absolutely have to pay it back before time runs out,” Rothman said.
Consumers spent more than $60 billion on deferred interest purchases in 2020, according to a report from the Consumer Financial Protection Bureau, which has apparently not been updated. The largest share was home improvement stores.
About four-fifths of consumers who took advantage of deferred interest paid off their debt by the end of the promotional period, avoiding interest charges, the federal agency said.
Financial experts say deferred interest can be a useful consumer tool for prudent borrowers with good credit and enough disposable income.
“The advantage is that you can spread out your cash flow and avoid paying interest on purchases, especially big-ticket purchases,” Rothman says. “I definitely see the consumer appeal.”
However, a Consumer Affairs Agency study found that only about three-fifths of borrowers with low credit scores paid off their balances on time to avoid interest charges.
A better option: Zero APR credit cards.
There are several options for deferred interest financing. One of the best cards, according to Rothman, is a credit card with no annual interest rate.
Zero APR cards allow consumers to make purchases without paying interest during a 12-, 18-, or even 24-month promotional period.
Once the promotion ends, interest will only accrue on the debt remaining on the card. Nothing is postponed.
