Reader’s Question: This should be an interesting question that will require you to open the vault of all counsel given over multiple years. Here goes: My present-day business class posted a Sept. 11, 2012, article that Kembala Evans wrote about the dangers of “90 days same as cash” deals.

Here’s my question: When you say that the penalty for late payment is interest backdated to the original amount of the purchase, is that interest rate applied as a fee or as interest accrued over 90 days out of a 360- or 365-day year? Sorry to bother you with this, but I can’t find a straight answer on deferred interest.

Kembala’s Response: Thanks for your question! The credit agreement really determines how the deferred interest is calculated and charged on accounts. For example, Goodyear Tires is offering a 6-month same as cash/no interest deal. According to their credit card agreement:

  • Credit cardholders will pay no interest if the entire balance is paid in full within the 6-month promotion period. Keep in mind cardholders will still need to pay the minimum payment amount, which is currently $28 for this credit card offer to avoid any additional fees.
  • If the entire balance is not paid in full, then the total deferred interest amount is charged on the statement in month 7. This amount is calculated based on the original purchase date amount – no matter what the current balance on the account is since it wasn’t paid in full. Per the credit terms, “If the balance is not paid in full by the end of the promotional period, interest charges will be imposed from the purchase date at the variable purchase rate on your account which is 30.74% APR. This APR is as of December 26, 2018 and will vary with the market based on the Prime Rate.”
  • If you look under promotions it specifies “We will impose interest charges on the deferred interest balance at the APR for regular purchases from the date of purchase if you do not pay the balance in full by the end of the promotional period.”
  • In this example, interest is calculated based on a 365-day period. Per the agreement – “Interest Charges. We impose interest charges when we apply APRs to your account balances. We do this every day by using a daily periodic rate. To get a daily periodic rate, we divide the APR by 365.”

Hope this helps. Thanks for checking out my article. Wishing you all the best in school!

The original article the reader referenced is Beware of Same as Cash, No Interest Deals…

Final thought: So how much could it cost if you don’t pay in full? It depends because the calculation is based on your original purchase amount and the interest rate. I spoke with someone in a credit card customer service center about same as cash/no interest offers. She told me that people are usually surprised when they see the charge on their statement. Don’t let that be you.

You can avoid any interest if you pay in full within the time period. But if you don’t expect to see them collect their interest the month after your no-interest period expires. So if you had a 6-month deal, that’s month seven. The interest amount usually shows up as one lump sum. She has seen deferred interest amount to as little as $30 to over $1,000.