Financing offers tend to be especially tempting during the expensive holiday shopping season, and that makes “deferred interest,” a feature commonly found in the fine print of retailer payment plans, particularly dangerous. Deferred-interest financing is like a wolf in a sheep’s clothing, pairing an enticing offer – something like “no interest if paid in full” or “special financing” – with a clause that allows the deal to turn ugly if you make the slightest mistake.
Deferred interest means you pay no interest or a reduced rate for a period of time, but allows for the possibility that a high regular APR could retroactively apply to your entire original purchase amount – as if the low intro rate never existed. Paying one month’s bill a day late or owing even $1 when the promotional period ends could trigger the deferred interest clause, activating high interest charges.
Suppose, for example, you’re interested in opening a new credit card account to finance a couple of big-ticket items from your child’s Christmas list. And let’s say they cost a total of $800, an amount you think you can repay within six months in the absence of interest. But things happen, and it ends up taking you seven months instead. With a normal 0% APR credit card, you’d end up paying about $2 in interest (assuming a six-month intro term and a 20% regular APR) because interest would apply only to the balance remaining at the intro term’s conclusion. But with a deferred-interest credit card, you’d be on the hook for roughly 27.5 times that amount (i.e., $55 in interest).
To help consumers avoid such an unfortunate financial surprise this holiday season, WalletHub evaluated the financing options available from 72 large retailers.
Key Findings
90% of all deferred-interest credit cards are issued by just three banks: Synchrony, Citi and Comenity.
Retailers often don’t list the regular APRs of deferred interest plans in large enough font or in a prominent location.
Average score has increased in 2022, suggesting that retailers are paying attention to increasing the transparency of their offers for deferred interest financing.
Office Depot & OfficeMax, QVC and Tractor Supply Co. are the least transparent retailers regarding the use of deferred interest in 2022.
Detailed Findings
Transparency Scoring for Retailers with Deferred Interest Plans
| Retailer | Location of “interest will be assessed from purchase date” | Readability of “interest will be assessed from purchase date” | Location of Regular APR | Readability of Regular APR | 2021 score |
|---|---|---|---|---|---|
| Info | Max 4 points | Max 2 points | Max 2 points | Max 2 points | Max 10 points |
| Home Depot | 4 | 2 | 2 | 2 | 10 |
| JCPenney | 4 | 2 | 2 | 2 | 10 |
| Menards | 4 | 2 | 2 | 2 | 10 |
| Sears | 4 | 2 | 2 | 2 | 10 |
| Big Lots | 4 | 2 | 1 | 2 | 9 |
| Dell | 4 | 2 | 1 | 2 | 9 |
| Pep Boys | 4 | 2 | 1 | 2 | 9 |
| Pier1 Imports | 4 | 2 | 1 | 2 | 9 |
| Wayfair | 4 | 2 | 1 | 2 | 9 |
| Amazon | 2 | 2 | 1 | 2 | 7 |
| Guitar Center | 4 | 2 | 1 | 0 | 7 |
| Staples | 2 | 2 | 1 | 2 | 7 |
| Zales | 4 | 2 | 1 | 0 | 7 |
| Kay Jewelers | 4 | 2 | 1 | 0 | 7 |
| Lowe's | 1 | 2 | 1 | 2 | 6 |
| Best Buy | 2 | 2 | 1 | 0 | 5 |
| Office Depot & OfficeMax | 2 | 0 | 1 | 0 | 3 |
| QVC | 2 | 0 | 1 | 0 | 3 |
| Tractor Supply Co. | 2 | 0 | 1 | 0 | 3 |
Deferred Interest Plans by Retailer
| Retailer | Offers Deferred Interest Plan in 2021 | Deferred Interest Period | Regular Rate (After Deferred Interest) | Applies to: |
|---|---|---|---|---|
| Amazon | YES | 6/12/24 months | 28.99%(V) | 6/12 months - All items / 24 months - Select items |
| Best Buy | YES | 12/18/24 months | 29.99% (V) | 12/18/24 months - All items |
| Big Lots | YES | 6/12 months | 29.99% (V) | All items |
| BrandSource | Yes, in stores | 6/12/18/24 months | 29.99% (V) | All items |
| Dell | YES | 6/12 months | 19.24% - 29.99% (V) | All items |
| Dick's Sporting Goods | Yes, in stores | 12, 18 and 24 months | 29.99% (V) | All items |
| Guitar Center | YES | 6/12 months | 29.99% | 6 months - All items / 12 months - Select items |
| Home Depot | YES | 6/12/18/24 months | 17.99% - 26.99% (V) | 6 months - All Items / 12/24 months - Select items |
| JCPenney | YES | 18 months | 28.99% (V) | Select Items |
| Kay Jewelers | YES | 6/12/18 months | 29.99% | All items |
| Lowe's | YES | 6/12 months | 26.99% | 6 months - All items / 12 months - select items |
| Menards | YES | 6 months | 24.99% (V) | All items |
| Office Depot & OfficeMax | YES | 6 months | 29.74% (V) | All items |
| Pep Boys | Yes | 6/12 months | 29.99% | All items |
| Pier1 Imports | Yes | 6/12/18 months | 29.99% | All items |
| QVC | YES | 9/12/18 months | 29.99% (V) | Select Items |
| Sears | YES | 12 months | 9.90% - 28.99% (V) | Select Items |
| Staples | YES | 6/12/18 months | 29.99% (V) | All items |
| Tractor Supply Co. | YES | 6/12 months | 29.74% (V) | All items |
| Wayfair | YES | 6/12/18/24 months | 30.74% (V) | All items |
| Zales | YES | 6/12/18 months | 29.99% | All items |
The retailers we found not to offer any type of financing include: AAFES, Abercrombie & Fitch, Advance Auto Parts, American Eagle Outfitters, AutoZone, Barnes and Noble, Bass Pro Shops, Belk, Cabela's, Calares, Cato Fashions, Coach, Costco, DSW, Foot Locker, Gap, H&M, Hobby Lobby, Kate Spade New York, Kohls, Meijer, Men's Wearhouse, Michaels Stores, Neiman Marcus, Nordstrom, O'Reilly Auto Parts, Pet Smart, Pottery Barn, Radioshack, Ralph Lauren, Ross Stores, Saks Fifth Avenue, Sherwin-Williams, Target, Tiffany & Co., TJX, True Value, Walmart, West Elm, Williams-Sonoma,
Ann Taylor, Bed Bath & Beyond, BJs, Burlington, Forever21, GameStop, IKEA, Macy's, Victoria's Secret don’t currently use deferred interest, but they reserve the right to do so in the future. BrandSource and Dick’s Sporting Goods offer deferred interest in stores only.
Applying for a credit card does not automatically sign you up for a deferred-interest plan. Rather, one may be offered to you based on creditworthiness and active promotions. Depending on the retailer, financing plans could apply to in-store purchases only or online purchases as well.
Ask the Experts: Deferred Interest Danger
For added insight into the use and potential regulation of deferred interest financing plans, we turned to experts in the fields of law, business and consumer protection. You can check out our panel of experts, the questions that we asked them and their comments below.
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- People think “deferred interest” financing plans are unfair - do you agree?
- Does it surprise you that 0% financing is a bigger draw for a store credit card than a first-purchase discount?
- People think deferred interest financing should be illegal - do you agree?
- Why do you think regulators allow retailers to use deferred interest financing?
Ask the Experts
Ph.D. – Associate Professor of Finance, Saint Leo University, Donald R. Tapia School of Business
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Assistant Professor, Owen Graduate School of Management, Vanderbilt University
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Vice President, Affiliate Relations at HomeFree-USA
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Methodology
We selected 72 large retailers and analyzed the financing options they give consumers. We collected information present on the product and disclosure pages of their websites. Offers information was collected on November 15th, 2022 and is likely to have changed since.
We analyzed the summary and main credit card pages associated with each retailer to determine: A) whether the retailers offer deferred interest; and B) if applicable, how upfront and transparent they are in disclosing key terms associated with their deferred-interest plans.
Based on this research, we identified four general types of retailers: 1) those not offering any financing options; 2) those offering financing options but not using deferred interest; 3) retailers that have deferred-interest language in their disclosures but don’t seem to be using the feature in active offers or do not allow consumers to apply for deferred-interest offers online; and finally, 4) retailers who offer deferred-interest promotions.
Only retailers that offer deferred-interest financing plans for personal (not business) use and provide detailed information about their offers online were scored. Retailers not offering any type of financing were not scored. Retailers that included deferred-interest language in their disclosures but for whom we could not find offers of deferred interest as well as those that did not allow the consumer to apply for deferred-interest plans online were not scored for this report.
Transparency for those with deferred interest was scored on a 10-point scale based on the location and the readability of the key terms associated with deferred-interest plans. Key terms include:
a.) Language explaining that if customers do not pay their balance in full by the end of the promotional period, the standard interest rate will be applied to the entire original balance of their purchases retroactively from the purchase date.
b.) The regular APR that will apply at the end of the promotional period, and/or retroactively if the balance is not paid on time.
Generally, these two key pieces of information are present somewhere on the retailers’ websites or online disclosures. However, in many cases, the information was difficult to locate and understand. Since most consumers do not look far beyond a tag line advertising, “0% interest,” “no interest if paid in 12 months,” or “special financing for 6 months,” for example, the farther away the key information was from the tag line, the more misleading we considered it to be. Additionally, we considered the size of the font used to list the key terms in determining the “readability” factor. If the information was buried in a terms and conditions page, readability was automatically scored at zero since the size of the font does not matter if the consumer has very little chance of finding the information.
Specifically, the following criteria were applied:
1.) Location of language indicating “the standard interest rate will be applied to the balance from purchase date” (worth up to 4 points total)
- Directly under tag line advertising promotion (4 points)
- Need to scroll down to a separate location on page to find text (2 points)
- Must access a secondary or pop-up page to get the info (1 points)
- Terms and conditions page only (0 points)
2.) Readability of language indicating “the standard interest rate will be applied to the balance from purchase date” (worth up to 2 points total)
- Normal size font (2 points)
- Small size font (0 points)
- Terms and conditions page only (0 points)
3.) Location of regular APR that will apply at the end of the promotional period, and/or retroactively if the balance is not paid on time. (worth up to 2 points total)
- Close proximity to advertising tag line (2 points)
- Consumer needs to scroll down to a separate location from advertising tag line and / or access secondary page / pop-up page (1 point)
- Terms and Conditions page only (0 points)
4.) Readability of regular APR that will apply at the end of the promotional period, and/or retroactively if the balance is not paid on time (worth up to 2 points total)
- Normal size font – (2 points)
- Small size font – (0 point)
- Terms and conditions page only (0 points)
Retailers that did not offer deferred interest directly but allowed the “Bill me later” option from PayPal were not considered as offering deferred interest for the purpose of this report.
This report was first done in 2012, and the current methodology was introduced in 2013.
Issuer Comments
In the interest of transparency, we have included below Synchrony Bank’s thoughts on this study and the use of deferred interest.
“We disagree with the study methodology and, therefore, the results. The methodology appears to use a static formula to score placement of deferred interest language that is not based on how consumers actually read advertisements and gather information. Although not reflected in the results, Synchrony always provides a prominent disclosure that interest will accrue from the date of purchase if the balance is not paid in full by the promotion’s expiration date in close proximity to the first mention of the deferred interest promotion. This approach is both logical, and required by law.
Deferred interest is an important product that offers value to many consumers and retailers. Consumers continue to embrace deferred interest products, which are an increasingly important and popular source of financing in enabling them to make bigger ticket purchases they need from the businesses where they prefer to shop. We are committed to ensuring consumers understand deferred interest is a fair, transparent and easily understood product, and they understand how to avoid paying interest. We have taken a number of steps to improve and enhance our disclosures and consumer education well beyond what the CFPB and the law require.” -2016