Personal Finance

Be careful with zero percent interest plans

Here’s a familiar marketing pitch that consumers may encounter this holiday shopping season: zero percent interest for 12 months.

Sounds appealing, but consumer experts recommend tiptoeing carefully around this financing option.

These buy now, pay later promotions — offered by many large retailers to customers using their store credit cards — are known as deferred interest plans.

They can save you a lot of money as long as you pay off your balance for that purchase in the allotted time and don’t make any late payments along the way.

But if you’re a few days late or fail to pay off the balance in full by the end of the deferred interest period, well, it’s as if the zero percent terms never were offered. Instead, you could end up with hundreds of dollars of expensive interest to pay off.

That’s why CardHub, a credit card comparison website, said the plans can be “financially disastrous.”

Under a typical deferred interest plan, paying off the credit card debt just one month behind schedule, say seven months rather than six, could result in an interest rate charge of at least 25 percent, according to CardHub, which recently surveyed the retail industry about these types of financial options.

Deferred interest plans have been around for a long time, but many big-name retailers push them harder during holiday season promotions as a way to entice consumers to spend on electronics, furniture and other big-ticket items with the swipe of the store’s credit card.

Don’t confuse these plans with standard credit card promotions that offer initial reward bonuses and long interest-free terms of up to 18 months to woo new customers.

Consumer experts say many shoppers, particularly younger, more inexperienced ones, may not understand the full terms of the deferred interest deal they’re being offered. That’s partly because some retailers don’t clearly communicate the key information about the plans.

CardHub in November surveyed 50 large traditional and online-only retailers to determine how many offered deferred interest plans and how well the details were presented to their credit card customers.

About half the retailers surveyed offer deferred interest plans, CardHub said, but many did a poor job of explaining their policies.

The information often was buried in very hard to find disclosures in the “footnotes or terms and conditions pages” of their brochures and other marketing pieces, CardHub said. It gave low marks to Pottery Barn, Lowe’s and, among others.

The credit card group also gave high marks to several retailers, including Wal-Mart, J.C. Penney and Best Buy, for generally providing “complete and easily accessible information about the terms of their deferred interest plans on their websites.”

If you bought something with no-interest terms, the Consumer Financial Protection Bureau recommends paying more than the minimum amount due each month. The goal is to pay off the deferred interest balance before the grace period ends. And don’t be even a day late.

Wouldn’t that be a nice path to follow in 2014?