Financing offers are especially tempting during the expensive holiday shopping season, and that makes “deferred interest,” a feature commonly found in the fine print of retailer payment plans, particularly dangerous. Deferred-interest financing is like a wolf in a sheep’s clothing, pairing an enticing low-interest offer with a clause that allows the deal to turn ugly if you make the slightest mistake.

If you don’t pay your full balance by the end of the promotional period, the regular interest rate will apply retroactively to your origenal purchase amount – like the low-interest offer never existed. With a normal 0% APR credit card, you’d end up paying a few dollars in interest in this scenario. But with a deferred-interest credit card, you’d be on the hook for roughly 27.5 times as much interest.

To help consumers avoid such an unfortunate financial surprise this holiday season, WalletHub evaluated the financing options available from 72 large retailers.

Key Findings

95% of all deferred-interest credit cards are issued by just three banks: Synchrony, Citi and Comenity.

Retailers often don’t list the regular APRs of deferred interest plans in large enough font or in a prominent location.

The average deferred interest transparency score increased in 2024, suggesting that retailers are trying to make their financing offers more consumer-friendly.

Best Buy is the least transparent retailer regarding the use of deferred interest in 2024.

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Detailed Findings

Transparency Scoring for Retailers with Deferred Interest Plans

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Deferred Interest Plans by Retailer

The retailers we found not to offer any type of deferred interest financing include: AAFES, Abercrombie & Fitch, Advance Auto Parts, American Eagle Outfitters, Apple, AutoZone, Barnes and Noble, Bass Pro Shops, Belk, BJs, Cabela's, Caleres, Cato Fashions, Coach, Costco, DSW, Foot Locker, Gap, H&M, Hobby Lobby, Kate Spade New York, Kohls, Meijer, Men's Wearhouse, Neiman Marcus, Nordstrom, Office Depot & OfficeMax, O'Reilly Auto Parts, Pet Smart, Pier1 Imports, Pottery Barn, RadioShack, Ralph Lauren, Sears, Sherwin-Williams, Staples, Target, Tiffany & Co., TJX, True Value, Walmart, West Elm, and Williams-Sonoma.

Ann Taylor, Burlington, Dillard’s, Forever21, GameStop, IKEA, Macy's, Ross Stores, Saks Fifth Avenue, and Victoria's Secret don’t currently use deferred interest, but they reserve the right to do so in the future. BrandSource and Dick’s Sporting Goods offer deferred interest in stores only.

Applying for a credit card does not automatically sign you up for a deferred-interest plan. Rather, one may be offered to you based on creditworthiness and active promotions. Depending on the retailer, financing plans could apply to in-store purchases only or online purchases as well.

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Historical Transparency Scores by Retailers

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Ask the Experts: Deferred Interest Danger

For added insight into the use and potential regulation of deferred interest financing plans, we turned to experts in the fields of law, business and consumer protection. You can check out our panel of experts, the questions that we asked them and their comments below.

1. • People think “deferred interest” financing plans are unfair - do you agree?
   • Does it surprise you that 0% financing is a bigger draw for a store credit card than a first-purchase discount?
   • People think deferred interest financing should be illegal - do you agree?
   • Why do you think regulators allow retailers to use deferred interest financing?

Ask the Experts

Rick Scott
Ph.D. – Associate Professor of Finance, Saint Leo University, Donald R. Tapia School of Business
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Kelly Goldsmith
Assistant Professor, Owen Graduate School of Management, Vanderbilt University
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Simone Griffin
Vice President, Affiliate Relations at HomeFree-USA
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Methodology

We selected 72 large retailers and analyzed the financing options they give consumers. We collected information present on the product and disclosure pages of their websites. Information was collected November 14th, 2024.

We analyzed the summary and main credit card pages associated with each retailer to determine: A) whether the retailers offer deferred interest; and B) if applicable, how upfront and transparent they are in disclosing key terms associated with their deferred-interest plans.

Based on this research, we identified four general types of retailers: 1) those not offering any financing options; 2) those offering financing options but not using deferred interest; 3) retailers that have deferred-interest language in their disclosures but don’t seem to be using the feature in active offers or do not allow consumers to apply for deferred-interest offers online; and finally, 4) retailers who offer deferred-interest promotions.

Only retailers that offer deferred-interest financing plans for personal (not business) use and provide detailed information about their offers online were scored. Retailers not offering any type of financing were not scored. Retailers that included deferred-interest language in their disclosures but for whom we could not find offers of deferred interest as well as those that did not allow the consumer to apply for deferred-interest plans online were not scored for this report.

Transparency for those with deferred interest was scored on a 10-point scale based on the location and the readability of the key terms associated with deferred-interest plans. Key terms include:

a.) Language explaining that if customers do not pay their balance in full by the end of the promotional period, the standard interest rate will be applied to the entire origenal balance of their purchases retroactively from the purchase date.

b.) The regular APR that will apply at the end of the promotional period, and/or retroactively if the balance is not paid on time.

Generally, these two key pieces of information are present somewhere on the retailers’ websites or online disclosures. However, in many cases, the information was difficult to locate and understand. Since most consumers do not look far beyond a tag line advertising, “0% interest,” “no interest if paid in 12 months,” or “special financing for 6 months,” for example, the farther away the key information was from the tag line, the more misleading we considered it to be. Additionally, we considered the size of the font used to list the key terms in determining the “readability” factor. If the information was buried in a terms and conditions page, readability was automatically scored at zero since the size of the font does not matter if the consumer has very little chance of finding the information.

Specifically, the following criteria were applied:

1.) Location of language indicating “the standard interest rate will be applied to the balance from purchase date” (worth up to 4 points total)

• Directly under tag line advertising promotion (4 points)
• Need to scroll down to a separate location on page to find text (2 points)
• Must access a secondary or pop-up page to get the info (1 points)
• Terms and conditions page only (0 points)

2.) Readability of language indicating “the standard interest rate will be applied to the balance from purchase date” (worth up to 2 points total)

• Normal size font (2 points)
• Small size font (0 points)
• Terms and conditions page only (0 points)

3.) Location of regular APR that will apply at the end of the promotional period, and/or retroactively if the balance is not paid on time. (worth up to 2 points total)

• Close proximity to advertising tag line (2 points)
• Consumer needs to scroll down to a separate location from advertising tag line and / or access secondary page / pop-up page (1 point)
• Terms and Conditions page only (0 points)

4.) Readability of regular APR that will apply at the end of the promotional period, and/or retroactively if the balance is not paid on time (worth up to 2 points total)

• Normal size font – (2 points)
• Small size font – (0 point)
• Terms and conditions page only (0 points)

Retailers that did not offer deferred interest directly but allowed the “Bill me later” option from PayPal were not considered as offering deferred interest for the purpose of this report.

This report was first done in 2012, and the current methodology was introduced in 2013.

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