A deferred interest rate deal involves you paying less interest (usually for a set amount of time) than what is usually charged. For example, if you were to buy a television set in a store, and the terms said, “no interest for 12 months,” it means you get the opportunity of not paying the interest on that television set for the first 12 months.

However, there is a catch. You must pay off the initial amount of money you borrowed. If you can’t pay the entire balance off in time, then you’re on the hook for the entire interest bill on the initial purchase amount. Therefore, once the 12 months are over, you have to start paying all of the interest on the television set if you are still paying it off.

Where Is Deferred Interest Used?

Usually deferred interest is offered or provided for expensive items that you need or want. This could be furniture, motor cars, jewelry, etc. When it comes to holidays, many retailers will entice people with their “buy now, pay later” promotions. Credit cards and online retailers also have these kinds of offers.

Consumers sometimes think that offers like this sound too good to be true. With the holiday season upon us, some retailers are beginning to focus on selling their more expensive, high-end goods to customers, and to do so, they have created credit offers that may persuade customers to make bigger purchases. Offers may come your way with promises of no interest payments for months or even years.

For many consumers, this is exceptionally appealing especially when they were already planning on or hoping to be able to make big purchases. If you don’t have the money or the savings, it’s at times like these that retailers “trap” customers, allowing them to purchase liberally, spreading their payments over time, and excluding interest.

Downside of Deferred Interest Plans

The interest doesn’t just disappear if the consumer can’t pay off the initial purchase in the deferral period. If there remains a balance, the consumer will owe the full interest from the date of purchase on the original purchase price.

Amazon, for example, is the world’s leading online digital retailer. They sell everything from coffee tables to garden hoses to drones. On some purchases, they offer a six-month deferred interest plan. They have the typical terms. Users pay no interest if their balance is paid within six months. Those who can’t or don’t pay their balance in full by the end of the deferral period will have to owe interest from the date they purchased the item over the full term of the loan. Additionally, an annual percentage rate (APR) of 25.99% is applicable.

Many consumers believe that when they take these types of credit cards out, they will pay off their balance in the allotted time, but that’s not always the case. Retailers, experienced in the game of credit, prey on this tendency of being optimistic about paying off debt. Unfortunately, the retailers are the ones who most often benefit from these plans.

Deferred interest is still paying interest; you just don’t pay it until later. It can be useful, as long as it’s managed properly. Deferred interest should be used only if you are positive you can pay your account in full before the end of your promotional period. Deferred interest products aren’t really good deals for consumers if they don’t understand the term and then get hit with the big interest charges. The best advice is: don’t say “yes” to 0% finance in the store on a whim.