Interest Free Credit Cards Often Have Expensive Deferred Interest

General and specialty retail “big box” stores abound with offers of interest free credit cards whose advertisements may misleading, according to consumer advocates. These store-linked interest free credit cards can be very helpful for the very disciplined consumer seeking to be able to afford expensive items such as furniture sets or larger electronics.

If the customer is not attuned to financial detail or has an unstable source of income, however, there are often loopholes which can override the benefits. One needs to remember that no business is in business not to make money, and so it goes with interest free credit card offers.

As usually written in the fine print, the cost of financing consumer goods via so-called interest free credit cards  can be regained in deferred interest—interest which starts building from the day of purchase and is tacked on in full if the item is not paid in full by the end of the promotional period of 6-18 months.

According to an articlepublished on CreditCards.com recently, the deferred interest rate can often be more than 20 percent–way over the average interest-bearing credit card rate of 15 percent.

The fact these interest free credit card offers exist at all is because a certain number of consumers that are lured in to making larger purchases using this financing tool, do not pay it off on time and are slapped with enormous fees at the end. It is a boon for the financing bank and the store that has a shared-profit arrangement with them.

Other Alleged Tricks of the Financing Trade

Once the consumer is invested in the promotional period of an interest free credit card offer of 0 percent, there are other methodologies in the financier’s playbook to gain profit at the expense of the unwitting consumer.

The first, according to the same article on CreditCards.com, is to tie the deferred interest to a trigger such as a late payment. If a customer fails to make even one payment on time, all contingent interest charges are levied against him or her.

Second, interest free credit card offerors frequently give a line of credit more than the desired big-ticket purchase. This can be a subtle encouragement to add other purchases to the card from time to time.

When a payment is then made, the value of that payment may be applied to the most recent purchase–not to the item purchased under a promotional period. This detail is outlined in the fine print and makes it ever more difficult to meet a deadline without incurring deferred interest.

The Credit Card Act of 2009

Some of these practices were under discussion while the Credit Card Act of 2009 was being formulated under the Obama Administration. Many wanted to scrap the legality of such interest free credit card offers altogether, but they were still found to be popular with consumers overall.

In lieu of disallowance, a greater number of rules were instituted in February 2010 that affected these financing plans. Among those changes were that promotional periods could be no shorter than six months, and that ads could not advertise 0 percent annual percentage rate (APR) without a caveat that the payments must be paid monthly and on time and balance must be paid off by the end.

Join a Free Zero Percent Store Credit Cards Class Action Lawsuit Investigation

If you were unexpectedly faced with high interest charges on a store credit card even though you made the purchase on a 0% interest store branded credit card, you may be entitled to compensation.

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