Deferred Interest Plans Poised to Increase Cost of Holiday Financing 2,700%
With the average holiday shopper expected to spend somewhere between $750 and $850 this year, it’s fair to assume that many will turn to financing offers in order to bring holiday cheer to their families while paying off the associated expenses over the course of a few months. History indicates that will be the case, after all, as U.S. consumers racked up more than $44 billion in debt during the fourth quarter of 2011 and nearly $30 billion during the same time period the year before. While financing itself isn’t inherently problematic, a recent Card Hub study revealed that opting for the wrong financing plan from a retailer could inflate the cost of holiday shopping by roughly 2,700 percent.
Card Hub’s 2012 Deferred Interest Study analyzed the financing policies of 45 of the country’s largest retailers in order to gauge the prevalence of so-called deferred interest payment plans, which offer consumers an initial interest-free term yet retroactively assess interest to the entire original balance if the full amount is not paid off before regular rates take effect. In other words, failing to pay as little as one dollar of your holiday shopping tab could effectively transform interest-free financing into high-interest financing, leaving you with an unexpected expense that could throw a major wrench into your budget.
The study found that of the 82.2 percent of major retailers that offer financing, 62.2 percent of them provide a deferred interest option and therefore pose harm to consumers. To make matters worse, 54.1 percent of the retailers that make financing available aren’t transparent about their policies, and their employees are generally ill prepared to properly explain the intricacies of their financing options to customers.
Since many retailers offer their financing through co-branded credit cards, it can therefore be difficult to differentiate deferred interest plans from the traditional 0% credit card offers that have become popular since the Great Recession and actually provide a great deal of value. Not only does the average 0% credit card offer a 10-month respite from interest, according to Card Hub statistics, but 0% terms are available for as long as 18 months and only the amount of your balance remaining at the end of such a period accrues interest.Continued on the next page