What is deferred interest (short definition)
– Deferred interest is a financing arrangement where interest charges are postponed for a specified promotional period. If you completely repay the balance within that period, no interest is collected. If the balance is not paid off by the end of the promotion, interest typically begins to accrue — and in many retail credit offers that interest is applied retroactively to the original purchase date.
Key concepts and definitions (define jargon on first use)
– APR (annual percentage rate): the yearly interest rate charged on borrowed money, expressed as a percent.
– Deferred interest period: the promotional time window during which the lender agrees not to charge interest if the balance is paid in full.
– Retroactive interest (backdating): when interest is charged from the original purchase date if the balance remains after the promotional period ends.
– Negative amortization: when unpaid interest is added to the loan principal, increasing the outstanding balance instead of reducing it.
– Recast: a change in required payments (often larger) after a temporary period, used to amortize an increased principal over the remaining term.
How deferred interest works — plain language
– Retail deferred-interest promotion: A store or its financing partner lets you take an item home and pay over, say, 12 or 24 months without periodic interest. If you pay the entire purchase before the promotion ends, you owe no interest. If you don’t, the lender often charges interest retroactively on the full original purchase amount from day one.
– Credit-card deferred-interest offers: Some cards have promotional 0% or deferred-interest periods for purchases or balance transfers. Similar rule: fail to clear the eligible balance by the deadline and interest may be applied to amounts you already paid down.