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I bought something using my store credit card and was told that I would not have to pay any interest for 12 months. How does that work?

It sounds like your card has a deferred interest plan. This means that you won’t pay interest on that purchase as long as you pay off your balance for that purchase by the end of the deferred interest period (12 months in your case) and don’t make any late payments. Deferred interest plans are often associated with store credit cards, but can also be offered on other types of credit cards. If one of your payments is late, or if you don’t pay off the full balance by the end of the deferred interest period, you could have to pay all of the interest that you expected to be deferred.

My statement
Your credit card company must tell you the date by which you must pay off your balance to avoid being charged deferred interest. That information must appear on the front page of your bill. Certain deferred interest promotions may run by weeks instead of months, so they might have a different ending date from your regular monthly payment due date.

If you purchase something on a deferred interest plan, your credit card bill may show your purchase as a separate balance from other purchases on which you can’t defer the interest. Transactions at different APRs may also show as separate balances.

How interest is charged
If you haven’t paid off the balance for your deferred interest purchase when the deferred interest period ends, you will be charged interest on that balance. Usually, the interest is calculated based on the balance you owed in each month since you first made the purchase. In your case, if you don’t pay the entire balance off in 12 months, you will be charged interest for each month on the balance you owed in each of the 12 months.

Tip: Pay off your deferred interest balance before the deferred interest period ends. If you don’t, you will be charged interest on your purchase going back to the date you first made that purchase. Remember that certain deferred interest promotions may run by weeks instead of months, so they might have a different ending date from your regular monthly payment due date.

Repayment
Credit card companies use your payments to pay off purchases with the highest APR first, then the second highest, then the third highest, and so on. If your interest is being deferred for some purchases, they may be last on the list.

This payment schedule changes when there are only two months left in your deferred interest period. At that point, if you pay any more than the minimum monthly payment, your card issuer must use that money to pay down your deferred interest purchases.

Tip: You can ask your card company to apply anything you pay above the minimum monthly payment amount to your deferred interest balance. Credit card companies are not required to honor this request, but if they do, it may increase your likelihood of paying the balance in full before the end of the deferred interest period.  

Tip: Try to pay more than the minimum payment each month. The minimum payments alone probably won’t pay off your deferred interest purchase before the deferred interest period ends. Keep track of how close you are to paying off a deferred interest balance. To make sure you don’t pay interest for the full time period you have to pay the balance in full before the end of the deferred interest period.

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