The busiest shopping period of the year is right around the corner and sales are expected to increase by 4.1% from last year’s holiday season, reaching up to $616.9 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 in order 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 these plans.
- 69% 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 that provide financing, 50% currently offer a deferred interest plan.
- Under a deferred interest payment plan, paying off your credit card debt one month behind schedule or missing a single payment could increase your financing costs by more than 27 times.
- Of the retailers that currently offer deferred interest, 29% scored very low on our transparency scale (between 0 and 6 points) because they bury information in footnotes or terms and conditions pages. This is down from 41% last year.
- 29% of the retailers offering deferred interest had complete and easily accessible information about the terms of their plans on their websites. These retailers received a high transparency score (10 points).
- 35% of the deferred interest credit cards (or cards that may offer deferred interest in near future) are issued by Citi and 25% are issued by Synchrony Bank.
- Despite not having a deferred interest plan themselves, several retailers offer the ability for consumers to make payments through PayPal, which offers a “Bill Me Later” deferred interest option.
- 53% of the retailers that offer deferred interest provide consumers with an alternative, whereby they can take advantage of an initial discount rather than special financing. The average discount is 16%.
- Companies such as Apple and Amazon, which have built their brands around providing consumer-friendly products, offer deferred interest – a decidedly misleading and potentially harmful financing option.
- Either deferred interest payment plans should be abolished or regulators should institute more stringent disclosure requirements.
Transparency Scoring for Retailers with Deferred Interest Plans
|Retailer||Location of “interest will be assessed from purchase date”||Readability of “interest will be assessed from purchase date”||Location of APR||Readability of APR||Total Points|
|Max 4 points||Max 2 points||Max 2 points||Max 2 points||Max 10 points|
|Tractor Supply Co.||4||2||2||2||10|
|Toys R Us||2||2||1||2||7|
|Office Depot & OfficeMax*||4||2||1||0||7|
Deferred Interest Plans by Retailer
|Retailer||Offered Deferred Interest Plan in 2012||Offered Deferred Interest Plan in 2013||Offers Deferred Interest Plan in 2014||Deferred Interest Period||Rate after Deferred Interest||Applies to:|
|Ace Hardware||NO||NO||NO||N/A||13.99% – 22.99%||N/A|
|Amazon||YES||YES||YES||6 months, 12 months, 24 months||25.99%||Advertised Items|
|Apple||YES||YES||YES||6 months, 12 months, 18 months||22.99% – 26.99%||All items|
|Best Buy||YES||YES||YES||6 months, 18 months, 24 months||25.24% – 27.99%||All items|
|BJs||NO||NO||NO||N/A||13.99% – 24.99%||N/A|
|Dell||YES||YES||YES||6 months, 12 months||19.99% – 29.99%||Selected Items|
|Dillard’s||NO||Yes. No online application.||NO||N/A||22.99% – 24.99%||N/A|
|Home Depot||YES||YES||YES||6 months, 12 months, 24 months||17.99% – 26.99%||Marked Categories|
|JCPenney||YES||YES||YES||12 months||26.99%||Furniture or Mattress Purchase|
|Lowes||YES||YES||YES||6 months, 84 fixed monthly payments at 5.99% APR until paid in full||24.99%||All items|
|Macy’s||YES||YES||YES||12 months||26.99%||Furniture or Mattress Purchase|
|Meijer||NO||Deferred interest plan inactive.||Deferred interest plan inactive.||N/A||23.99%||N/A|
|Menard||YES||Yes, in limited locations. No online application||Deferred interest plan inactive.||N/A||24.99%||N/A|
|Nordstrom||NO||NO||NO||N/A||10.9% – 22.9%||N/A|
|Office Depot & OfficeMax**||YES||YES||YES||6 months||27.99%||All items|
|Pottery Barn||YES||YES||YES||12 months||26.99%||All items|
|RadioShack||YES||YES||YES||6 months||28.99%||All items|
|Sears||YES||YES||YES||18 months||25.24%||All items|
|Staples||YES||YES||YES||6 months, 8 months, 12 months||25.24% – 27.99%||All items|
|Toys R Us||YES||YES||YES||6 months, 12 months||26.99%||All items|
|Tractor Supply Co.||YES||YES||YES||6 months , 12 months||25.99%||All items|
|True Value||NO||YES||YES||6 months||13.99% – 24.99%||All items|
|Victoria’s Secret||YES||Yes, in limited locations. No online application||Deferred interest plan inactive.||N/A||24.99%||N/A|
|Walmart||YES||YES||YES||6 months, 12 months, 18 months, 24 months||16.90% – 22.90%||All items|
|Williams-Sonoma||NO||NO||NO||N/A||13.74% – 21.74%||N/A|
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 49 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 10, 2014.
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 that have deferred-interest-specific language in their disclosures but for which we could not find any specific information on active or previous promotions or that do 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.
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.
- Do you see any problem with deferred interest financing? If so, what is the biggest issue (e.g. product disclosure, disclosure)?
- Do you expect deferred interest financing to be outlawed in the next few years?
- What does the use of deferred interest say about the companies that employ it?