Promotional credit plans provide you with a way to make a needed purchase immediately while offering you the advantage of payment flexibility for auto repairs— potentially without interest. As a financial option, a credit plan can be a great way to make a big ticket auto repair manageable.
How promotional credit plans work
Many promotional credit plans require you to make a minimum purchase to enjoy either a no interest or deferred interest benefit. That benefit is coupled with a delay period-- the standard period of time you are given to pay off the balance in full. Delay periods typically range from six months to a year. Failing to pay off your balance at the end of the delay period means you may incur a penalty or be on the hook for interest charges that accrued during that period of time.
Deferred interest versus no interest
Promotional credit plans come with either deferred interest or no-interest terms. It’s very important to understand the differences because they are major. A no interest or zero interest plan is exactly as it sounds, meaning that even if there is an unpaid balance at the end of a delay period, accrued interest will not be applied to your account.
Unlike a no-interest financing plan, a deferred interest plan requires you to fulfill two major criteria to successfully utilize the credit plan's terms and avoid interest charges. First, you must make the required minimum monthly payments each month. Second, you must pay off the promotional purchase balance by the time the delay period ends, so that your account will not be charged interest that accrued during that time.
How to apply for a promotional credit plan
Before applying for a promotional credit plan, be sure to understand the exact terms of the financing program. You’ll want to make sure you fully understand the promotional interest delay period, monthly minimum payment requirements, and penalty for failing to make a minimum payment or adhere to the terms.
Getting approved for a promotional credit plan can be a financial lifesaver when it comes to paying for major automobile purchases and emergency expenses. To learn more about promotional credit plans and financing for automotive repairs, check out Credit First National Association’s education page.
FAQs
A deferred interest plan means that you won't have to pay any interest on the purchase if you pay it off within the specified time frame – in this case, 12 months.
What is a deferral of interest expense? ›
Deferred interest loans are appealing. They allow you to take your purchase home without incurring interest charges for a certain period, often ranging from six months to two years. However, interest begins accruing on the entire balance from the day you accept the offer.
When might you want to use a deferred interest card instead? ›
If you can pay your balance in full before the deferred interest period ends, it may make sense to get a deferred interest card. If not, it's probably best to avoid a card with a deferred interest offer.
Can you get out of paying deferred interest? ›
You can avoid paying any interest at all with some deferred interest offers, like those often found on loans and store credit cards, by paying off the debt during the interest-free promotional period.
What is a deferred interest on a car loan? ›
You may still have to pay interest. It depends on your lender, but some require you still pay interest for the month when you defer. Your loan still accrues interest during your deferment. This means you could end up paying more in interest over the course of your loan than if you hadn't deferred the payment.
What are the disadvantages of a deferred payment? ›
Disadvantages of using a Deferred Payment Agreement
You'll also be expected to keep your home insured – even if it's empty – for the duration of your agreement. Financially, the implications of set up fees, annual administration charges and interest rate on your deferred debts might be off putting.
What are examples of deferred expenses? ›
These can include, but are not limited to, insurance premiums, rent, subscription services, and advertising contracts. The commonality among these payments is their future benefit to the business, extending beyond the current accounting period.
How do you record deferred interest expense? ›
Accounting for Deferred Expenses
Like deferred revenues, deferred expenses are not reported on the income statement. Instead, they are recorded as an asset on the balance sheet until the expenses are incurred. As the expenses are incurred the asset is decreased and the expense is recorded on the income statement.
Do you have to pay taxes on deferred interest? ›
Tax-deferred status refers to investment earnings, such as interest, dividends, or capital gains, that accumulate tax-free until the investor takes constructive receipt of the profits. The tax savings can be substantial when investments are held until retirement.
Which of the following is the best explanation of deferred interest? ›
Deferred interest is when interest payments are deferred on a loan during a specific period of time. You will not pay any interest as long as your entire balance on the loan is paid off before this period ends. If you do not pay off the loan balance before this period ends, then interest charges start accruing.
There are times in business when the funds to make a payment might not be immediately available. When this happens, rather than missing a payment and incurring penalties or interest, a deferred payment agreement can be entered into.
How to get deferred interest charges waived? ›
How to avoid deferred interest charges
- Pay your balance in full before the offer ends. This lets you benefit from the interest-free offer without being hit with deferred interest charges. ...
- Pay your bill on time each month. ...
- Keep spending to a minimum. ...
- Set a reminder two months before your offer ends.
In general, deferred interest financing or payments don't impact your credit any differently than traditional financing. When you defer interest, it still accrues, you just won't owe it if you pay off your balance in time (with a loan or credit card) or later on (with a mortgage).
Is deferred interest legal? ›
Though deferred interest offers are legal, the risks often outweigh any upsides so we at Forbes Advisor recommend avoiding such financing plans.
Can you dispute a deferred interest charge? ›
If you were charged interest for an expired deferred interest promotional period and never received any communication about the end of the promotional period due to the seller having the wrong email address, you might have grounds to dispute the charges.
What is the meaning of deferred financing? ›
Deferred Financing Costs — Costs incurred in conjunction with obtaining permanent financing for the Company have been deferred and are amortized using the straight-line method, which approximates the effective interest method, to interest expense over the remaining term of the financing.
Are deferred loans good? ›
Deferment is actually a tool to keep your loan account in good standing while experiencing hardship. Because of this, your credit won't be negatively impacted just because your loan is in deferment.
How do deferred interest promotions work? ›
A Deferred Interest Promotion is an offer that may be available on your purchase. With this offer, interest accrues (adds up) on your account from the purchase date, but is only charged if you do not pay off your promotional balance within the defined promotional period.
What is deferred payment financing? ›
A deferred payment is a payment plan that allows repayment of a debt at a future date without interest accruing. Loans are borrowed money for repayment also at a future date but with interest accrued. Loans can also have associated fees like finance charges and penalties for late payments.
