Experts caution U.S. shoppers as deferred interest financing emerges as major holiday risk
US retailers watch Black Friday traffic for a hoped-for holiday halo effect
( Image credit : AP )
A new WalletHub study reveals that many Americans misunderstand how deferred interest financing works, putting them at risk of hefty retroactive charges during peak holiday spending. Though promotions often advertise “no interest for 12 months,” interest quietly accrues in the background and becomes fully due if the balance isn’t paid off in time — even by a penny. Experts warn that retailers like Best Buy, Home Depot, and Lowe’s heavily rely on these offers, while stores such as Costco and Target avoid them entirely. With interest rates often exceeding 25%, analysts say these programs disproportionately affect shoppers with lower credit scores and can turn routine purchases into costly debt traps. Financial advisors recommend zero-APR credit cards as a safer alternative, offering interest-free periods without retroactive penalties.
<p>Shoppers browse through stores at Mall of America for Black Friday deals, Friday, Nov. 28, 2025, in Bloomington, Minn. (AP Photo/Adam Bettcher)</p>
As holiday shopping ramps up, financial experts are warning consumers about a common retail financing strategy that many Americans mistakenly view as harmless: deferred interest. That's according to a new study from WalletHub, which found half of U.S. consumers don't fully understand how these deals work - and 51% believe the practice should be illegal.
Deferred interest promotions usually look like banner advertisements, such as "No interest for 12 months" or "Same as cash." Shoppers usually find them when purchasing big-ticket items with a store credit card. But tucked away in the fine print is the catch: if the buyer doesn't repay the full balance before the promotional period expires, they are charged all the interest that has accumulated, often at rates over 25% or 30%. In effect, the customer loses the benefit entirely and gets hit with a huge bill.
"There's a lot of fine print with these deferred interest offers," said Ted Rossman, senior industry analyst at Bankrate. "Sometimes, people don't even realize what they're signing up for."
A new Deferred Interest Study by WalletHub, which was released Nov. 17, examined the financing programs for 72 major retailers and surveyed 200 consumers across the country. The findings indicate not only widespread confusion but also a perception that deferred interest is fundamentally unfair.
WalletHub's report features a "naughty list" of retailers that are most heavily reliant on deferred interest promotions in 2025, with major chains including Best Buy, The Home Depot, Lowe's, Michaels, Guitar Center, Wayfair, JCPenney, and Pep Boys. The study also noted that some of the stores downplay their high interest rates by printing them in tiny type or burying them within long, complex loan documents.
On the “nice list” are retailers that avoid deferred interest altogether. Among them: Target, Kohl’s, Neiman Marcus, Barnes & Noble, Big Lots, Costco, BJ’s Wholesale Club, and Pottery Barn.
What makes these financing plans particularly hazardous for unwary buyers is their structure. While offering zero interest, the interest is piling up behind the scenes during the promotional period. If the customer misses the payoff deadline-even "by one day or one penny," WalletHub analyst Chip Lupo warns-the entire backlog of interest becomes due immediately.
To put it into perspective, Bankrate used this example: imagine a consumer purchases a refrigerator for $1,800 on a 24-month deferred interest promotion at 25.99% APR. If the shopper makes steady monthly payments of $75, they won't be charged any interest. If they miss one or two payments, however, they could be looking at an additional $900 in interest charges at the end of the promotional period.
According to the Consumer Financial Protection Bureau, Americans spent more than $60 billion on deferred interest purchases in 2020. About 80% of consumers managed to pay off their balances in time, but those with lower credit scores struggled far more — only about 60% avoided interest.
Financial experts agree that deferred interest works for disciplined, high-credit shoppers who have liquidity to repay on time. For everybody else, especially in a season of rushed holiday spending, it turns into a debt trap.
The experts recommend zero-APR credit cards as a far safer alternative. Such cards allow for an interest-free period of 12 to 24 months, like these deferred interest deals but without retroactive charges. At the end of the promotional period, interest applies only on the remaining balance, rather than the full purchase amount. “The advantage is the opportunity to spread out your cash flow and avoid interest payments,” Rossman said. “I can definitely see the consumer appeal — but deferred interest is just too risky for many.”
Deferred interest promotions usually look like banner advertisements, such as "No interest for 12 months" or "Same as cash." Shoppers usually find them when purchasing big-ticket items with a store credit card. But tucked away in the fine print is the catch: if the buyer doesn't repay the full balance before the promotional period expires, they are charged all the interest that has accumulated, often at rates over 25% or 30%. In effect, the customer loses the benefit entirely and gets hit with a huge bill.
"There's a lot of fine print with these deferred interest offers," said Ted Rossman, senior industry analyst at Bankrate. "Sometimes, people don't even realize what they're signing up for."
A new Deferred Interest Study by WalletHub, which was released Nov. 17, examined the financing programs for 72 major retailers and surveyed 200 consumers across the country. The findings indicate not only widespread confusion but also a perception that deferred interest is fundamentally unfair.
Retailers Using Deferred Interest — and Those Avoiding It
On the “nice list” are retailers that avoid deferred interest altogether. Among them: Target, Kohl’s, Neiman Marcus, Barnes & Noble, Big Lots, Costco, BJ’s Wholesale Club, and Pottery Barn.
Why Deferred Interest Is So Risky
To put it into perspective, Bankrate used this example: imagine a consumer purchases a refrigerator for $1,800 on a 24-month deferred interest promotion at 25.99% APR. If the shopper makes steady monthly payments of $75, they won't be charged any interest. If they miss one or two payments, however, they could be looking at an additional $900 in interest charges at the end of the promotional period.
Who Gets Hurt the Most?
Financial experts agree that deferred interest works for disciplined, high-credit shoppers who have liquidity to repay on time. For everybody else, especially in a season of rushed holiday spending, it turns into a debt trap.