The Ugly Truth About 0% Interest Store Card Offers

Lots of store credit cards offer 0% interest financing for six months, 12 months, or longer. If you have any big purchases to make, this type of offer might seem like an amazing deal. You could get that laptop, furniture, or new pair of shoes that you want now, then just pay it off over time, without any interest charges.

While 0% interest store card offers can be useful, there's a huge drawback that many people don't know about. Before you consider buying anything this way, you need to know how this type of offer can end up costing you.

Most store credit cards only defer the interest charges

There are multiple types of 0% interest offers. Most store credit cards have deferred interest. That means there are still interest charges, but they're deferred until the end of the promotional period. If you pay off your full balance within that time frame, then you're not charged any interest.

However, if you fail to pay off the full balance, then you're charged all that deferred interest going back to when you made the purchase. What makes these offers even more dangerous is that minimum payments may not be enough to pay off the balance within the promotional period.

Imagine that you use a store card to buy a $1,000 laptop. The card normally charges a 25% APR on purchases, but it has a 0% interest offer if you pay in full within 12 months. If you pay that down to $0 within 12 months, then it truly is interest free. To accomplish that, you'd need to pay about $84 per month. But your minimum payment may only be $30 or $40 per month.

Let's say you decide to pay $70 per month. You'd still have a balance of $160 after 12 months. At that point, the card issuer would go back and tack on interest charges for every month. That would come out to about $150 in interest charges.

Waived interest offers are a better option

The other type of 0% financing is waived interest. This is where interest charges are waived entirely during an introductory period. If you have any remaining balance after the intro period, you're only charged interest on that balance going forward.

Waived interest is usually what 0% intro APR credit cards offer. These credit cards aren't tied to a specific store, which also means you can use them to finance purchases anywhere, not just with one specific retailer.

The disadvantage is that it's harder to qualify for waived interest offers. You typically need a good credit score of 670 or higher to get approved for a 0% intro APR card. Store credit cards, on the other hand, are often available to people with lower credit scores.

If your credit score is high enough to qualify for either one, then a card with waived interest is the better choice. You won't need to worry about getting hit with hefty interest charges if you don't pay off your balance in time.

Know what you're getting into with store card offers

Does this mean you should never use a deferred interest offer? I wouldn't go that far. They should be used sparingly, if at all, but they can have their uses.

For example, I paid for vision corrective surgery in my early 20s with a deferred interest offer. It cost $4,000, and I definitely didn't have $4,000 to spare at that age. So, I got a medical credit card with CareCredit and paid off the bill over time. I still consider it one of the best decisions I've made. I may have taken on some debt, but I was able to pay it off with no interest, and I don't regret jumping on an opportunity to have perfect vision.

If you're considering a financing offer from a store card, here's how to make sure it doesn't backfire on you:

• Check how much you'll need to pay per month to pay off your balance within the 0% interest period. For example, if a store card offers 0% interest if paid in full within six months, divide the purchase price by six to get the monthly payment amount you'll need to make.
• Always make your payments on time. Even with zero-interest offers, there's still a minimum monthly payment. If you miss your payment, you'll be charged a late fee. The card issuer could even cancel your 0% interest offer if you go too long without making your payment.
• Don't overdo it with zero-interest offers. If it's an important purchase you can't pay for in full, this type of offer could be worth it. But you shouldn't use them for just anything, and it's usually not a good idea to finance multiple purchases at a time this way.

A 0% interest rate seems like a steal, but it's one of the ways retailers get customers to spend more. It could also come back to bite you if you don't pay off your balance on time. Stick to 0% APR credit cards when possible, and if you use store financing, make sure you'll be able to pay it off within the designated time period.