Is zero percent introductory interest rate a good deal?

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SALT LAKE CITY — Beware of tempting credit card offers this holiday season. Many retailers are touting credit cards with an introductory zero percent interest rate, but that might not turn out to be such a great deal.

The signs are nearly irresistible: zero percent interest for a year or 90 days same-as-cash on a new credit card or store charge card. That's great, unless you don't pay off the entire balance in those 90 days.

Many of the big-name retailers that offer those so-called special financing deals charge what's called deferred interest. That means if you're late paying, you'll be zinged for the full interest rate on your entire original balance. It doesn't matter how much of it you've paid off.

Cardhub study findings
  • 70% of major retailers offer a financing option
  • Of those, 49% offer deferred interest
  • Of those, 41% scored very low for transparency
  • Under a deferred interest plan, paying off your credit card debt one month behind schedule could increase financing costs by more than 27 times
More info: recently released its analysis of deferred interest. A store card promising zero percent interest for six months defaults to 20 percent interest when that time is up. Then you pay back $799 of the $800 you racked up on the card by the end of the six-month period. Even though you only owe a measly $1, you will get charged $55 in interest. Had you used a traditional credit card, you'd only have to pay $2 in interest.

Cardhub found nearly half of the retailers that offer deferred interest options are not transparent about the terms.

The Consumer Financial Protection Bureaus said they've got to tell you the deadline to pay off your balance to avoid deferred interest. That information is required to be on the front page of your bill.

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Bill Gephardt


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