How US Debt Slaves Get Trapped by “Deferred Interest”, by Wolf Richter

Read the fine print on those “great deals” retailers offer to get you to sign up for their credit cards. From Wolf Richter at wolfstreet.com:

But over the next 2 months, they’ll try to prop up US retailers and the entire global economy.

Credit cards play a huge role in what the US retail industry hopes will be a $682-billion splurge by Americans over the holiday selling season. Already, total revolving consumer credit outstanding – mostly credit cards – has reached $1 trillion, up 5.4% from a year ago, and will surge over the next two months, as US consumers try to prop up the global economy by going deeper into debt.

So the consumer finance industry is proffering its services via store-branded credit cards to make this happen. It’s not doing this for the love of the US economy but to extract its pound of flesh from consumers who don’t make enough money to pay off their credit card balances every month – the very debt slaves that carry the $1 trillion on their backs – and who don’t read the fine print. For them, the finance industry has a special money extraction tool: “deferred interest.”

When consumers are at the cashier or online, they may get offers of 0%-financing and a discount on the first purchase if they sign up for a store-branded credit card on the spot. A study by WalletHub of the financing options offered online by 75 large US retailers found that all retailers that offer store-branded cards with 0% financing use “deferred interest” clauses:

Deferred-interest financing is like a wolf in a sheep’s clothing, pairing an enticing offer – something like “no interest if paid in full” or “special financing” – with a clause that allows the deal to turn ugly if you make the slightest mistake. Paying your bill a day late or owing even $1 when the promotional period ends would enable the issuer to retroactively apply finance charges to your entire original purchase amount, as if the intro rate never existed.

These “deferred interest” clauses are “commonly found in the fine print of retailer payment plans,” it says. They’re easily overlooked in the heat of the checkout battle. But they specify that high interest rates – up to 29.99% among the credit cards studied – may be applied retroactively to the full purchase amount back to the purchase date if one of these two common things happens:

  • Customer misses a monthly payment, or
  • Customer doesn’t repay the full balance within the 0% intro period.

 

 

To continue reading: How US Debt Slaves Get Trapped by “Deferred Interest”

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