With the holiday season upon us, one personal finance site is sounding the alarm on a ubiquitous retail payment plan that many Americans say should be outlawed.
It’s called “deferred interest.” In a typical scenario, the shopper puts a big purchase on a store credit card. The retailer promises to charge no interest if the buyer pays off the balance within a set time frame.
The problems start if you fail to repay the entire sum before the promotional clock runs out. At that point, the deal is off and the consumer owes every penny of deferred interest, often at a steep annual rate of 30% or more. It’s as if the promotion never existed.
Roughly half of American consumers don’t fully understand how deferred interest works, WalletHub reports in its Deferred Interest Study, published Nov. 17.
“There’s a lot of fine print with these deferred interest offers,” said Ted Rossman, a senior industry analyst at Bankrate, a site that also studies deferred interest. “Sometimes people don’t even realize what they’re signing up for.”
Many consumers who do understand deferred interest think it is unfair: In the WalletHub study, 51% of consumers said it should be illegal. The report examined financing options at 72 large retailers and analyzed a nationally representative survey of 200 consumers.
WalletHub has studied deferred interest since 2012, periodically flagging retailers that offer the loans and rating their financing offers on transparency and forthrightness.
“Deferred interest is a tool retailers use to entice customers into buying big-ticket items like big-screen TVs, like washer-dryer combos, like refrigerator-freezer sets,” said Chip Lupo, a writer and analyst at WalletHub.
The ‘naughty’ list: Big retailers that use deferred interest
Many big-name retailers use deferred interest in 2025, WalletHub reports. Among them: Best Buy, JCPenney, The Home Depot, Guitar Center, Lowe’s, Michaels, Pep Boys and Wayfair.
Some retailers downplay high interest rates in deferred interest plans, WalletHub says, by printing them in tiny type or not displaying them prominently in loan documents.
That’s the “naughty” list. Here are some retailers that made WalletHub’s “nice” list by eschewing deferred interest: Target, Kohl’s, Neiman Marcus, Barnes & Noble, Big Lots, Costco, BJ’s Wholesale Club and Pottery Barn.
Deferred interest deals abound during the holidays, often under such banners as “no interest for 12 months” or “same as cash.”
But those pitches are misleading, WalletHub advises, because the interest is still piling up. If the buyer misses the payoff deadline, it all comes due.
“If you miss that payment by one day or one penny, all of that interest retroactively applies from the date of purchase,” Lupo said.
Here’s how deferred interest works
Imagine buying a new refrigerator for $1,800 using a deferred interest offer of no interest for 24 months, at an annual percentage rate of 25.99%.
If you manage to pay $75 a month for each of those 24 months, you should be able to repay the full balance and avoid the interest.
Miss a payment or two, however, and you will face an extra $900 or so in interest charges when the 24 months are up. The calculations come from Bankrate, which supplied the example.
“You just absolutely have to pay it off before the clock runs out,” Rossman said.
Consumers spent more than $60 billion on deferred interest purchases in 2020, according to a report from the Consumer Financial Protection Bureau, findings that apparently have not been updated. The largest share went to home improvement.
About four-fifths of consumers who used deferred interest paid off the debt by the end of the promotional period, thereby avoiding the interest, according to the federal agency.
For savvy borrowers, with good credit and sufficient disposable income, deferred interest can be a useful consumer tool, finance experts say.
“The advantage is the opportunity to spread out your cash flow and avoid interest payments on your purchases, especially big ones,” Rossman said. “I can definitely see the consumer appeal.”
Among borrowers with lower credit scores, however, only about three-fifths paid off their balances in time to avoid interest, the consumer agency found.
A better option: zero-APR credit cards
There are several alternatives to deferred interest financing. One of the best, Rossman said, is the zero-APR credit card.
A zero-APR card allows a consumer to make purchases and pay no interest for a promotional period of 12, 18 or even 24 months.
When the promotion ends, interest kicks in – but only on the debt that remains on the card. Nothing is deferred.