What is Deferred Interest?

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Credit cards are full of hidden fees and charges, but thanks to the CARD Act, most people are already aware of what those fees are: annual fee, balance transfer fee, late fee, returned payment fee, etc. Easy enough, but have you ever heard of retroactive interest before? Retroactive interest is a common practice credit card companies used before the CARD Act came around.

Let’s take a look at what deferred interest is, also known as retroactive interest, so you know what to look out for in the future.

Retroactive Interest & The CARD Act

Retroactive interest occurs when a financial company charges you interest on purchases you previously made, but haven’t completely paid off yet. For example, if you choose to finance a purchase with a store card and were unable to pay it off in the introductory time period allowed, usually 6, 12, 18, or even 21 month periods, you would now be charged back-interest from the purchasing date.

The CARD Act banned arbitrary interest rate increases, which included retroactive interest, meaning banks can’t raise your rates on your existing outstanding balance unless you have failed to make payments for 60 days or more. Banks are getting around that though, by stating in their contract that they are allowed to increase rates that were agreed upon, which you can see below. If interested, you may read the terms of the CARD Act on retroactive rates.

deferred interest example

Credit Cards With Retroactive Interest

Most store credit cards will come with retroactive interest, but not credit cards that aren’t associated with a store. Yet another reason why you should steer clear of opening a credit card at check-out in order to get 15% off your purchase. It’s just not worth it! If you ever hear someone say the words “deferred interest,” you should definitely steer clear.

Here are a few credit cards where the words “deferred interest” can be found:

  • Amazon.com Store Card- You have the option for 6 month, 12 month and 24 month financing. The fine print states, “No interest if paid in full within 6 (or 12 or 24) months. Interest will be charged to your account from the purchase date if the promotional balance is not paid in full within 6 (or 12 or 24) months.”
  • Apple Store Card- You have the option for 6 month, 12 month and 18 month financing. The fine print states, “If the deferred Financing Purchase is not paid in full by the Promotional End Date or if you make a late payment, interest charges will be assessed for the entire promotional period at the then applicable rate for Purchases during the promotional period (currently 22.99%).”
  • Lowes Consumer Credit Card- You have the option for 6 month financing. The fine print states, “No interest if paid in full within 6 months. Offer applies to any Lowe's® Consumer Credit Card purchase or order of $299 or more. Interest will be charged to your account from the purchase date if the promotional purchase is not paid in full within 6months.”Kudos to Lowes for highlighting the deferred interest.
  • Office Depot Credit Account- You have the option for 6 month and 12 month financing. The fine print states, “If the balance is not paid in full by the end of the promotional period (or, to the extent permitted by law, if you make a late payment), interest charges will be imposed from the purchase date at the purchase rate on your account which is 27.99% APR.”

If you are not someone that typically carries a balance, then retroactive interest won’t have any real effect on your card choices. If you find yourself in trouble with one of these deferred interest cards, try transferring the balance to a low-interest credit card with 0% introductory APR to close the old account and pay off the balance in a timely manner.

This post originally appeared on blog.billguard.com/2013/08/retroactive-interest-charges/.

* Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.

*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.

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