The busiest shopping period of the year is right around the corner and sales are expected to increase by 3.7% from last year’s holiday season, reaching up to $602.1 billion, according to the National Retail Federation. During this period, financing options begin to seem more and more appealing to consumers.
In addition to the regular financing options available during this period, a number of special promotions will surface as well. Most of these promotions are actually deferred interest plans. Often advertised with bold tag lines stating “0% Interest for 12 months” or “Special Financing,” these plans sound great but the fine print reveals how financially disastrous they can be since the regular rate applies retroactively to the entire original balance if you do not pay in full by the end of the promotional period, or you make a late payment, no matter how much of the balance you have already paid back.
Suppose you open a new credit card to buy a couple of big-ticket items on your kids’ Christmas list – a laptop and a bicycle totaling $800, for example. If you choose a traditional credit card that offers 0% on new purchases for six months and charges a 20% regular interest rate and you miss your payoff goal by one month (paying off your total balance in seven months instead of six), you’ll pay $2 in interest. However, if you choose a card that offers deferred interest, you’ll not only pay 27.5 times more interest (i.e. $55), easily eradicating any Black Friday deals you might have scored, but it will also take you an additional month to become debt free.
This report shows the financing options available through 50 large retailers. Specifically, we identity which retailers offer deferred interest plans, and for those that do, how transparent their websites are in presenting key information to consumers about the terms of such plans. Our analysis reveals that many retailers offering deferred interest financing are less than up-front about the true potential costs of such plans.
- 70% of major retailers offer a financing option. The best deals come from retailers that do not use deferred interest, which include: Target, Nordstrom, and Gap. The worst deals come from retailers that not only offer deferred interest, but also are not transparent about their policies – a list that includes the likes of Pottery Barn, Amazon.com, Lowe’s, and Macy’s.
- Of the major retailers providing financing, 49% currently offer a deferred interest plan.
- Of those that currently offer deferred interest, 41% scored very low on our transparency scale (between 0 and 6 points) because they bury information about the deferred interest plans in footnotes or terms and conditions pages.
- Of those that currently offer deferred interest plans, 29% had complete and easily accessible information about the terms of their deferred interest plans on their websites. These retailers received a high transparency score (10 points).
- The average transparency score for all of the retailers currently offering deferred interest plans was 7 points.
- Pottery Barn had the lowest transparency score (0) with all key information about their deferred interest plan buried in very hard to find disclosures.
- 14% of retailers do not have an active deferred interest plan at this time but include information about such plans in their disclosures, indicating they may offer such plans at some point or that the offer is limited to in-store applications.
- Combined, Citi and GE Capital issue nearly two-thirds of the deferred interest credit cards (or cards that may offer deferred interest in near future), comprising 32% of the market each.
- Under a deferred interest payment plan, paying off your credit card debt one month behind schedule could increase your financing costs by more than 27 times.
- Despite not having a deferred plan themselves, several retailers offer the ability for consumers to make payments through PayPal, which offers a “Bill Me Later” deferred interest option.
Transparency Scoring for Retailers with Deferred Interest Plans
|Retailer||Location of “interest will be assessed from purchase date” (worth 4 points)||Readability of “interest will be assessed from purchase date” (worth 2 points)||Location of APR (worth 2 points)||Readability of APR (worth 2 points)||Total Points (out of 10 Points)|
|Tractor Supply Co.||4||2||2||2||10|
|Toys R Us||1||2||1||2||6|
Deferred Interest Plans Offered
|Retailer||Offered Deferred Interest Plan in 2012||Offers Deferred Interest Plan in 2013||Deferred Interest Plan Details|
|Macy’s||YES||YES||NO INTEREST IF PAID IN FULL WITHIN 12 MONTHS, PLUS NO DOWN PAYMENT with minimum $499 furniture or mattress purchase.|
|Amazon||YES||YES||6-Month Financing Offer, applies to any order total of $149 or more.
12-Month Financing Offer, applies to any order total of $599 or more.
24-Month Financing Offer, applies to any order total that includes an advertised eligible product.
|Apple||YES||YES||No interest if paid in full within the 6, 12, 18 months:
6 months no interest – On your qualifying Apple purchase of less than $499.
12 months no interest – On your qualifying Apple purchase of $499 to $1598.
18 months no interest – On your qualifying Apple purchase of $1599.
|Best Buy||YES||YES||6-Month Financing – On all storewide purchases totaling $149 or more.
18-Month Financing – On all storewide purchases totaling $429 or more.
24-Month Financing – On all HDTV, home theater and Geek Squad® home theater installation purchases totaling $599 or more.
|Dell||YES||YES||6 months special financing on new computer purchases $549 or more.
12 months special financing on new computer purchases $1049 or more.
|Home Depot||YES||YES||NO INTEREST IF PAID IN FULL WITHIN 6 MONTHS on purchases of $299 or more.
NO INTEREST IF PAID IN FULL WITHIN 12 MONTHS on any Installed Heating or Air Conditioning purchases, any Installed Water Treatment purchases, Appliance purchases or flooring option purchases of $299 or more.
NO INTEREST IF PAID IN FULL WITHIN 12 MONTHS on any Installed Roofing, Siding, Windows, Insulation, Gutter, and Leaf Protection purchases of $5000 or more.
NO INTEREST IF PAID IN FULL WITHIN 18 MONTHS on Appliance purchases or flooring option purchases of $999 up to $1,998.
NO INTEREST IF PAID IN FULL WITHIN 24 MONTHS on Appliance purchases or flooring option purchases of $1,999 or more.
|JCPenney||YES||YES||NO INTEREST IF PAID IN FULL WITHIN 12 MONTHS. Offer applies to furniture and mattress purchase(s) of $1000 or more.|
|Lowes||YES||YES||No interest if paid in full within 6 months on a purchase or order of $299.
84 fixed monthly payments at 5.99% APR until paid in full with minimum purchase of $3,500.
|Office Depot||YES||YES||No interest if paid in full within 6 months on purchases $299 or more.|
|Pottery Barn||YES||YES||12 months special financing, required minimum purchase of $750.|
|RadioShack||YES||YES||No interest if paid in full within 6 month $150 Minimum Purchase Required.
No interest if paid in full within 12 months $300 Minimum Purchase Required.
|Sears||YES||YES||No interest if paid in full within 12 months on home appliance purchases over $499.
No interest if paid in full within 12 months on Fitness Equipment purchases over $299.
No interest if paid in full within 12 months on Heating/Cooling system purchases over $1500
|Staples||YES||YES||No interest if paid in full within 6 months.Valid on all purchases $299 or more made by 12/31/13.|
|Toys R Us||YES||YES||6 Month Special financing applies to purchases of $299 or more
12 month Special financing applies to purchases of $749 or more.
|Tractor Supply Co.||YES||YES||No Interest if Paid in Full by January 1, 2015 on any purchase of $500 or more.|
|True Value||NO||YES||No interest if paid in full within 6 months minimum $299 purchase required.|
|Wal-mart||YES||YES||Pay no interest if paid in full within:
• 6 months on any purchase of $150 – $298.99.
• 12 months on any purchase of $299 – $428.99.
• 18 months on any purchase of $429 – $598.99.
• 24 months on any purchase of $599 or more
|Kohls||NO||Yes, in limited locations. No online application||N/A|
|Meijer||NO||Deferred interest plan inactive.||N/A|
|Victoria’s Secret||Yes||Yes, in limited locations. No online application||N/A|
|Menard||Yes||Yes, in limited locations. No online application||N/A|
|Dillard’s||NO||Yes. No online application.||N/A|
* Bill Me Later program from PayPal
N/A – no information could be collected and the scoring system could not be applied.
The retailers we identified that do not offer any type of financing include: Bed Bath and Beyond, Ross Stores, Barnes and Noble, AutoZone, Big Lots, Sherwin-Williams, Foot Locker, Burlington Coat Factory, Michaels Stores, The Sports Authority, IKEA, H&M, Advance Auto Parts, Game Stop and Pet Smart.
Applying for a credit card does not automatically sign you up for a deferred interest plan, but rather one will be offered to you based on creditworthiness and active promotions. Depending on the retailer, you may be able to use the plan just in store or for both online and in-store purchases.
In this year’s study, we selected 50 large retailers and analyzed the types of financing options that they provide to their customers. We collected information present on their product and disclosure websites and asked the retailers to confirm our findings. Where we were not able to obtain an official confirmation from the retailer, we called customer service lines. Information collected for this study was current as of November 20, 2013.
We analyzed the summary and main credit card pages associated with each retailer to determine A.) whether the retailers offer deferred interest and B) for those retailers that do offer deferred interest, 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 offering deferred interest promotions; 3) retailers who have deferred-interest-specific language in their disclosures but for which we could not find any specific information on active or previous promotions or did not allow the consumer to apply for deferred interest plans online; and finally, 4) retailers who offer deferred interest promotions.
Only those retailers that offer deferred interest financing plans for personal use (not business) with online applications were scored. Retailers not offering any type of financing options were not scored or considered in our analysis. 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 marked N/A and 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 original balance of their purchases retroactively from the purchase date.
b.) The standard 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 the tag line advertising “0% Interest,” or “No interest if paid in 12 months” the further away the key information was located 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 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 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 (1 point)
- Terms and Conditions page only (0 points)
4.) Readability of 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.
UDATE 11/21/13: The original calculations regarding the percentage of credit cards in this report that were issued by Citi (31%) and GE Capital (23%) were in reported error. In fact, 32% of the credit cards in our report were issued by Citi and 32% were issued by GE Capital. We have updated these statistics in the report to reflect this correction.