How much are you going to spend at Christmas this year? Well wallethub.com says the average shopper is expected to spend $1,048 this Christmas season. Their survey also revealed something else interesting.
82% of those surveyed did not know how deferred interest works.
Deferred interest is a simple concept. You purchase the item on credit, you are not charged interest on the purchase over a period of time, and as long as you pay it in full, you never pay the interest. However, if you do not get it paid off during the allotted time period, all of those interest charges are applied to the purchase from day one. This can result in a shopper spending up to 27.5 times more on interest relative to a normal 0% credit card offer.
82% of people do not know how deferred interest works.
81% of people who understand how deferred interest works think it is unfair; 65% think it should be illegal.
The list of popular retailers that still use deferred interest includes Apple, Amazon and Best Buy.
59% of people say 0% financing is a bigger draw for a store card than a first-purchase discount.
88% of store credit cards with 0% intro APRs have deferred interest.
The average store card with a first-purchase discount gives 26% off. One of the best store cards for a first-purchase discount is the Kohl’s card (35% off).
The average store credit card has a regular APR of 28.86%.
The average store credit card with a 0% intro APR has no interest for more than 16 months. One of the best for a 0% APR is the Amazon Store Card (up to 24 months).
All store credit cards have $0 annual fees. The average general-use credit card charges $18.81 per year.
Deferred interest fits the mold of the average credit card company. They appeal to your emotions with this kind of offering. We tend to rationalize and assume that we can get the item paid off during the 0% period. When at the same time. we have no idea how we are going to pay for it. It is as if magically it is going to pay for itself.
Credit card companies know that to be the case. If it didn't work so well, they wouldn't offer it. After all, they aren't in the business to give out 0% deals and make a profit. No, they count on you not paying the item off.
So, be careful this year. When it looks like the credit card company is going to give you a good deal, think again. They are in the smoke and mirrors game and not the good deal business.