The phrase “no interest until…” may not be what some consumers think.
Offers to pay no interest until the payment period ends are enticing. But you must pay off your balance in full when the time’s up, and you must not be even a day late on a single payment.
The federal Consumer Financial Protection Bureau puts the warning bluntly on its website: “If one of your payments is late, or if you don’t pay off the full balance by the end of the deferred interest period, you could have to pay all of the interest that you expected to be deferred.”
William Lund, superintendent of Maine’s Bureau of Consumer Credit Protection, says consumers sometimes assume deferred interest means they won’t be charged interest on their credit card purchase until the deferral period ends. Lund says they might also expect a notice during month 11 in a 12-month deal, reminding them that full payment is due to avoid retroactive interest charges.
He says both assumptions are wrong.
“Interest and late fees are how banks make money, and they would not offer these plans if consumers all paid the purchase price fully within the promotional period and did not owe fees and interest,” Lund said.
The price of deferred interest, then, is ongoing borrower diligence.
In the case of major purchases — appliances, furniture, medical devices — a lump-sum interest payment could be several hundred dollars. Consumers can avoid such shocks by making sure of the terms of any deal before signing up, giving themselves plenty of time to meet the payment deadline, and not using that credit card for other purchases — making it easier to track a deferred interest balance.
Visit Consumer Financial Protection Bureau’s website consumerfinance.gov, then search “deferred interest,” for several helpful tips:
— Pay off deferred interest balance before the deferred interest period ends. Some offers may be in weeks instead of months, so the end date may differ from your regular payment date.
— Try to pay more than the minimum payment every month. Paying the minimum likely won’t pay off your deferred balance in time; keep close track of your deferred interest balance.
— Ask your credit card company to apply whatever you pay above the minimum monthly payment to your deferred interest balance. The company doesn’t have to agree; if it does, the move might help you pay your balance before the deferred interest period ends.
Lund reminds consumers that interest rates are high, often nearly 30 percent per year.
Some consumers think federal or state laws cap those rates, but neither does. No state or federal law limits interest rates on credit cards issued by national banks, another reason to know terms of any deal before signing up.
Lund also notes that, although credit cards are offered through retailers, they are underwritten by nationally chartered, out-of-state banks. Laws of the banks’ “home states” apply, and Maine regulations don’t apply.
In case of problems, consumers may complain to federal regulators — Consumer Financial Protection Bureau. Staff of Maine’s Bureau of Consumer Credit Protection can answer questions about protecting one’s credit. Call toll-free in Maine at 1-800-332-8529.
CardHub, which compares credit card offerings online, predicts credit card debt will rise a net $60 billion by the end of the coming holiday season. See the company’s study of deferred interest at its website cardhub.com.
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer, ME 04412, visit http://necontact.wordpress.com or email firstname.lastname@example.org.