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Don’t Be Fooled By No Interest Jewelry Store Credit Cards

Deferred interest house of (credit) cards If you don't pay off your deferred interest credit balance by the end of the promotional period then the interest you owe can fall on you like a house of (credit) cards.

You have probably read some articles describing how a money-savvy groom opened a 0% introductory offer credit card to purchase that stunning diamond ring. However, what those articles failed to mention is what happens when the groom doesn’t pay off the balance before the promotional period expires.

Unfortunately, most consumers don’t understand how the no interest (more technically referred to as a deferred interest) credit card promotion actually works. A recent survey done by Affirm showed that out of 700 respondents with deferred interest credit cards, only 12% of them could answer questions correctly about how much they would owe if the balance wasn’t paid off in time.

Deferred Interest Credit Survey by Affirm Out of 1,600 respondents, 43% have had deferred interest credit cards, but only 12% could answer questions correctly about how much they would owe if the balance wasn’t paid off in time

While we can’t say exactly why most people don’t understand the terms, we would guess that it’s because credit card agreements are needlessly complicated (for your weekend reading pleasure) and because jewelry store salesman don’t want to turn away a customer. We are going to do the best we can to explain how a deferred interest credit works. We are going to follow up this post with another common jewelry credit card promotion as well as a roundup of different credit card offers available. Also, check out our previous post on how getting a credit card can ding your credit score.

How Does No Interest Credit Card Financing Work?

First of all, before we jump into the nitty gritty, we will be explaining the general terms of common jewelry store deferred interest credit card offers. We are not providing the terms of any specific credit card. It is your responsibility to read through and understand (or at least try to) the agreements before applying for any jewelry store credit card.

Most jewelry stores offer a no interest (deferred interest) credit card that are provided by a handful of banks: Comenity, Wells Fargo, Synchrony, Capital One and TD Bank to name a few. A typical offer will looking something like this:

No Interest If Paid In Full Within 12 Months

Interest will be charged to your account from the purchase date if the purchase balance is not paid in full within the 12 months or if you make a late payment.

While the terms will vary between banks and retailers, the promotional terms follow a similar formula:

  • You pay 0% interest as long as you pay the balance in full before the end of the promotional period, which is typically 12 or 18 months.
  • If you don’t pay back the full balance (even if you have $1 left) before the promotional period ends or if you ever make a single late payment, then you will owe interest at the standard interest (ranging from 17.99% to 28.99%) as if it was applied from day one (notice how the offer above doesn’t even state the standard interest).
  • Going forward, you will be charged at the standard interest on your remaining balance until you pay off the balance.

Basically what’s happening is the standard interest (ranging from 17.99% to 28.99%) is being calculated in the background from day one. This “shadow” interest is known as deferred interest. If you don’t pay off the balance or make a single late payment then you’ll owe all the deferred interest that’s been accumulating in the background.

How Much Will You Owe?

Below is a simple example of a deferred interest credit card with the following terms:

Purchase Price Promotional Period Standard Interest
$5,000 12 months 28.99%

In this scenario, you purchase a $5,000 ring with a deferred interest credit card. Now, if you pay off the balance before the 12 month promotional period ends then you owe $0 in interest. However, let’s say you make payments of $417 a month, which will leave you with a balance of only $1 at the end of 12 months. Since you didn’t pay off your balance within the 12 month promotional period, your balance will jump up $785 from the deferred interest that’s been accumulating in the background. Going forward, you will be charged at the standard interest rate of 28.99% until you can pay off your balance.

Deferred Interest Credit Card Example This is a very simple example for illustrative purposes. You can actually owe a lot more if you don’t pay off the balance shortly after the promotional period ends

In this example, the balance is paid off shortly after the promotional period is over, and you end up paying $815 in interest (or about 16.30% of the purchase price). However, if you aren’t able to pay off the balance shortly after the 12 months is over you can owe considerably more in interest (sometimes even more than double the purchase price).

While paying 0% interest might seem enticing, keep in mind that:

Even if you only have $1 left on your balance the day after the 12 month promotional period is over, you will actually owe $785 at the standard interest of 28.99%

Should You Get A Deferred Interest Credit Card?

On average, only about 75% of deferred-interest offers were paid down in full before their promotional period ended between 2009 and 2013, according to the most recent data available from the Consumer Financial Protection Bureau. The payoff rate was considerably lower for below prime (<640 FICO) customers, where only about 50% of customers paid off their balance in time. Unless you are absolutely sure you can pay off the balance in time then a deferred interest credit card might be right for you.

In our next post, we’ll discuss another common jewelry store credit card promotion: a “low-interest” credit card.

Gage Diamonds Financing

At Gage Diamonds, we think there’s a better way to finance your engagement ring. Unlike other jewelry stores, we have an exclusive, in-house financing partner. We make our “interest” by sourcing our products at wholesale prices and offering them at competitive retail prices. By partnering directly with our financing partner we can offer true 0% APR financing to our customers. That means no promotional periods or deferred interest. What you see at checkout is always exactly what you’ll pay.

If you are interested in financing your engagement ring, wedding ring or other fine jewelry, please visit our financing page to learn more and apply.