Holiday shoppers, beware: Signing up for instant credit could quickly turn into a jingle hell. The truth is that understanding some credit card deals can be as tricky as trying to make a gingerbread house from scratch — just too many ways the walls can come crashing down on you.
On the one side, you could be looking at a pretty good deal for a 0% rate.
On the other, the special, interest-free financing could be worthless a few months from now.
Everything, of course, can look more affordable if you can work out a deal on the spot for financing. Many consumers, particularly millennials, are more comfortable borrowing for a specific purpose, too.
Yet if you are planning to get engaged this holiday season, watch out if the jeweler suggests that you really can afford that $7,000 ring if you take out instant financing.
Not all financing — particularly when it comes to deferred interest — works the way you would expect.
If someone tells you that an interest-free introductory offer is good for three or six months, you would never expect that some slip-up suddenly could change all the rules when it comes to deferred interest so that you never get a break.
Roughly eight in 10 consumers do not understand how deferred interest actually works, according a survey by WalletHub.
Here is another tip: Nearly nine in 10 store credit cards that promote interest-free introductory rates are products that involve deferred interest, according to WalletHub.
Popular retailers that offer some deferred interest programs include Apple, Amazon and Best Buy. Others that sell big-ticket items, such as appliances, offer deferred interest plans in the stores, too, such as Home Depot and Lowe's, according to WalletHub.
Some retailers may even offer incentives for their sales staff to encourage you to use such financing, said WalletHub CEO Odysseas Papadimitriou.
He said deferred-interest financing is a "counterintuitive practice that depends on predatory surprise tactics to turn a profit."
What should shoppers keep in mind?
The idea of getting a break on financing isn't bad on the surface. And it will work for some people who take extra care making their payments and have enough money in their budget to pay off the bill in full in a set time frame.
But there are some circumstances where people can lose out and interest can build, unlike what would happen if you took out a more traditional credit card offering a 0% rate for six months.
Not knowing how the exact rules work could end up triggering $55 or more in back interest on an $800 purchase after the holidays, if you are looking at a deferred-interest loan, according to WalletHub's research.
It is also important to know that a 0% introductory offer that you spot in the mail for a typical credit card doesn't have the same terms as "special financing."
We are talking about real money here where a great deal is suddenly a very bad one.
Many people don't understand that interest can easily end up being retroactive on deferred interest loans, said Chi Chi Wu, staff attorney at the National Consumer Law Center in Boston.
A 2015 report issued by the center noted that such cards had a "hidden time bomb. Even consumers who do understand the nature of deferred interest plans can get trapped," the report noted.
"Consumers may expect to be able to pay the balance in full by the end of the promotional period, but for a variety of reasons [such as job loss or other financial emergency] find that they cannot.
"It's pretty deceptive," Wu said.
What triggers high-cost interest on a 0% deal?
Take extra time reading the fine print.
The Barclaycard Financing Visa offered at Apple, for example, could provide interest-free financing for six months on purchases of less than $499 if the bill is paid in full within the promo period.
Yet, "interest will be charged to your account from the purchase date if the purchase balance is not paid in full by the end of the promotional period … or if you make a late payment."
The annual interest rate that you would pay would be based on your creditworthiness and could be a variable rate of 15.74%, 21.74%, or 28.74%.
Two triggers: You must pay off the entire bill during that promo period. And you must make payments required during that interest-free time frame.
Many times, a minimum payment is required during the "same-as-cash" period. If the minimum payment is late, the borrower might no longer qualify for a "no-interest for 12 months" type of program.
But just making the minimum payments won't be enough.
Another trip wire:
"Your Apple purchase(s) may not be paid in full by the financing offer expiration date if you pay only your minimum amount due each month. You may have to make additional payments to avoid interest charges."
Not surprisingly, consumers are tricked by such complex rules.
What kind of rates might you pay?
The average store credit card with a 0% introductory APR has no interest for more than 16 months.
But low rates aren't part of the picture after the promotional period ends. The average store credit card has an annual percentage rate of 28.86%, according to WalletHub.
