Deferred Interest.

In plain English

Deferred interest is a financing offer, common on store cards and big purchases, that advertises no interest if paid in full within a set period such as 12 months. The catch is that interest is still adding up behind the scenes the entire time. If you pay the whole balance off before the deadline, you owe no interest. But if even a small balance remains when the period ends, or you fall more than 60 days late on a minimum payment, the issuer charges you all the interest that built up from the original purchase date, not just on the leftover amount. The CARD Act requires this to be disclosed, but the cost can still surprise people who pay late or leave a few dollars unpaid.

01Why it matters

One small leftover balance at the deadline can trigger months of back interest on the full original purchase, turning a no-interest deal into an expensive one overnight.

02The math, step by step

You buy a $1,200 couch on a 12-month deferred interest plan. You pay it down to $50 by month 12 but miss paying off that last $50 in time. Instead of interest on $50, the issuer charges all the interest that accrued on the full $1,200 from day one, which can add a large lump sum to your balance. Paying the entire $1,200 before the deadline would have cost zero interest.

03What this is NOT

04Receipts

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