In the Era of BNPL, Deferred Interest Offers Hang On

With the holiday shopping season already underway, many gift givers may be enticed by the promise of deferred-interest financing. Although buy now, pay later options have stolen much of the spotlight from this older model—once popular when shoppers were as likely to have a store card as a general-purpose credit card—a handful of card issuers and a wider range of retailers still promote these plans. Their days, however, may be numbered.

Under these arrangements, retailers offer zero-interest introductory periods but then apply interest retroactively if the buyer misses a payment or fails to pay off the balance before the promo period ends. When that happens, the regular interest rate is applied to the entire original purchase amount, effectively erasing any benefit of the introductory offer.

What makes these plans even riskier, according to a deferred interest study from WalletHub, is that stores are not always transparent about how they work.

And because store cards often carry exceptionally high interest rates, shoppers can end up paying as much as 35.99% at retailers like Michael’s and Kay Jewelers. In many cases, retailers disclose these APRs only in fine print or in places customers are unlikely to notice.

Private Labels Are Disappearing

Consumers are catching on. According to WalletHub, roughly half of respondents say deferred-interest plans should be outlawed—and, in what’s likely a related finding, roughly the same share admits they don’t fully understand how these plans work.

How long can these offerings hold on? Store cards that once promoted them as introductory perks have lost much of their appeal, with usage steadily declining over the past two decades, according to Javelin Strategy & Research.

“Deferred interest plans have been typically attached as promotional deals to private label credit cards,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research. “There, the model still has relevance for acquisition at the point of sale, usually through signage or store clerks recommending the financing option.”

Many Other Options

Shoppers now have plenty of options when choosing how to pay.

BNPL plans also let consumers delay payments, but without the risk of steep interest charges suddenly popping up a few months down the line.

“The main threat that has taken share of traditional deferred interest programs has been BNPL, which offers similar 0% terms although paid in installments for a fixed period of time,” said Danner. “For this holiday season, expect to see a plethora of financing options at the POS.”