Deferred Interest Promotional Financing vs. 0% Intro APR Offers

It’s important to understand your financing options when you are figuring out the best way to pay for out of pocket health and wellness-related expenses such as cosmetic procedures, dental work or veterinary care for your beloved pets.

Paying the whole bill up front might not always be feasible, which is why many people take advantage of promotional financing so they can pay their bill over time. There are different types of promotional financing, including deferred interest financing offers, which you may see advertised as “No Interest if Paid in Full Within X Months,” and 0% introductory APR (annual percentage rate) offers. It’s important to understand the details of each to help keep your cost of borrowing as low as possible.

What Is a Deferred Interest Promotional Financing Offer?

With deferred interest financing, you won’t be charged interest if it is paid in full within the agreed to promotional period. Interest accrues on the promotional balance from the purchase date, but it is not charged to your account unless you have a balance on the promotional purchase at the end of the predefined promotional period.¹

When an offer uses language like “No Interest if Paid in Full Within 6, 12, 18 or 24 months”* (depending on the offer), it is a deferred interest promotional financing offer.¹ Interest will be charged to your account from the purchase date if the promotional balance is not paid in full within the promotional period, and minimum monthly payments are required.

Example of a deferred interest promotional financing offer

Let’s say Laura is getting an elective cosmetic procedure that costs $2,000, but she doesn’t have that lump sum of cash on hand to pay for it. The provider might offer her No Interest if Paid in Full Within 12 months promotional financing.

To avoid paying interest, Laura must have a zero balance on the promotional purchase by the end date of the promotional period. In order to keep the account in good standing, Laura must make at least the minimum monthly payment due each month, but she may want to pay more each month to ensure she stays on track.

The other option that will allow Laura to avoid paying the interest that has accrued on the account is to make the required minimum monthly payment and be ready to make a balloon payment — a large, one-time amount — at the end of the promotional period in order to pay the remaining balance.

When Laura gets her first bill, the required minimum monthly payment is $84, and that’s what she decides to pay each month. What she may not consider is that making only the required minimum payment for 12 months would only come to $1,008, leaving a $992 balance at the end of the promotional period. If Laura does not pay the $992 by the end of the promotional period, all of the interest that has been accruing since day one on the promotional purchase amount will be charged to her account, causing the balance to increase. Laura will start paying interest on her new total balance, too.

Here’s what Laura could have done instead: Take the promotional purchase amount and divide by the number of months in the promotional period. In this case, 12 equal payments of $167.00 would take care of the procedure cost. To make sure she doesn’t accidentally forget to pay, she could set up automatic payments. She could even pay a little extra each month, so she’s done paying the balance ahead of schedule.

The important thing to remember is that if there is any balance left by the end of the promotional period, even just $1, then the full amount of accrued interest is applied to the account.¹

Pros and cons of deferred interest

Here are some benefits and drawbacks of a deferred interest financing offer:¹

Pros

• It provides flexibility to pay off a purchase over time.
• You can avoid paying interest if you pay off the promotional purchase amount by the end of the promotional period.

Cons

• Making only the required minimum monthly payments may not be enough to pay the full promotional balance before the end of the promotional period.
• Interest is accruing from the original promotional purchase date, and the APR could be high.
• Missing a payment may nullify some promotional financing agreements.¹ (Note: CareCredit does not void promotional financing offers because of late payments, though you may incur a late fee).

What Is APR?

Annual percentage rate (APR) is the yearly cost of borrowing money on a credit card or loan, including interest and fees, expressed as a percentage. If there are no fees, your APR is the same as your interest rate. An APR can be fixed, meaning it won’t change based on changes in the market or other factors, or variable, meaning it fluctuates based on an index like the prime rate.²

What Is a 0% Intro APR Offer?

A 0% intro APR offer is an offer to pay a general purpose credit card balance for a set period of time without any interest.³ It’s different from a deferred interest financing offer in that no interest is accruing during the promotional period.³ In other words, if you have six months with a 0% intro APR, as long as you make your minimum monthly payments, you will not pay any interest during that period. It’s important to keep in mind that just paying the minimum monthly payments may not fully pay off the principal by the end of the introductory offer period; if any balance is still owed, the regular APR will be applied to that remaining amount.³

Example of 0% APR

John learns from his veterinarian that his dog needs emergency surgery that costs $1,500, and even though he doesn’t have the full amount on hand he, of course, wants to save his pooch. The vet is able to offer an introductory 0% APR for six months, allowing John to break up the cost.

John could decide to break up the bill into six equal payments, which would be $250 per month. However, the required minimum monthly payment due might be lower.

If John pays off the full balance before the end of the 0% APR period, he can avoid paying any interest.

Now, let’s say life gets in the way, and John is only able to pay off $1,200 in the six-month period. At that point, he may be charged interest (depending on the agreement); if so, that interest would only be on the $300 balance that remains.³

Pros and cons of 0% introductory APR offers

Here are some upsides and downsides of 0% introductory APR offers:

Pros

• There’s extra time to tackle a large bill.³
• If you don’t complete payment by the end of the introductory APR period, interest is charged only on the remaining balance.³

Cons

• Interest after the introductory period may be high.
• A late or missing payment may void the 0% APR or even trigger a higher penalty APR.⁴

Comparing Deferred Interest Financing Offers to 0% Introductory APR Offers

Whether your offer is a deferred interest financing offer or a 0% introductory APR offer, the key is to pay off the promotional purchase amount within the promotional timeframe to avoid being charged interest. If you still have a balance at the end of the promotional period, the interest charges on the deferred interest financing offer could be more costly than with the 0% APR offer. This is because deferred interest is accruing on the promotional balance from the date of purchase, while the 0% introductory APR offer expiration only impacts the remaining balance moving forward.

Here’s a look at how both options might look for someone paying for a dental procedure. Suppose Phillip’s dental implant bill comes to $3,500.

With a deferred interest financing offer, let’s say Phillip is offered No Interest if Paid in Full Within 18 Months with the CareCredit credit card. If any promotional balance remains at the end of the promotional period, a 32.99% APR will be applied on the full promotional purchase amount from the purchase date. If Phillip knows he can pay $195 (the suggested payment) per month over the 18 months, this could be an ideal option for him, and he will avoid paying interest if he pays the promotional balance off by the end of the promotional period.

But Phillip is a freelancer with inconsistent income, so he likes the fact that the required minimum monthly payment is $75. That way, if he is running short one month, he could scale back the payment a bit and then pay extra when he has more cash flow. This option provides flexibility. However, he has to be careful to pay the full promotional purchase amount by the end of the promotional period because the accrued interest will be charged to his account if he does not.

The dentist also has a 0% intro APR offer for which Phillip has 12 months to pay the balance. If he were to make 12 equal monthly payments, that would come to around $292 per month. Phillip knows that he’ll only have to pay interest on any remaining balance after the promotional offer period ends if he makes only the required minimum payment on some months.

Here’s how things could play out:

Interest Charges Over Time

If you’re wondering how interest charges for these types of offers might compare, here’s an example. Let’s consider a $2,000 procedure: first with a Deferred Interest if Paid in Full in 6 Months offer and then with a 0% introductory APR for 6 Months offer. Let's say the APR on the account is 35%. You decide to pay $250 per month, which is more than the required minimum monthly payment, but less than the suggested monthly payment amount, that would pay the balance in full within the promo period.

With a six-month deferred interest promotional financing offer**

Interest accrues, but is not charged each month during the promotional period.

• Month one. $58.34 interest (based on the $2,000 balance)
• Month two. $51.04 interest (based on remaining $1,750 balance)
• Month three. $43.75 interest (based on remaining $1,500 balance)
• Month four. $36.46 interest (based on remaining $1,250 balance)
• Month five. $29.17 interest (based on remaining $1,000 balance)
• Month six. $21.88 (based on remaining $750 balance)

Because there is a remaining balance when the deferred interest financing offer promotional period expires, all of the interest accrued in months one through six is totaled and added to the remaining balance. Note that if you were able to come up with a larger balloon payment in the sixth month to pay off the promotional purchase amount, you could avoid the interest.

With an introductory offer of 0% APR for six months**

Assuming you pay the same $250 per month during the promotional period, in month seven, you only have to pay the interest that accrues on the remaining principal balance.

Plan Ahead and Follow Through to Avoid Paying Interest

Both deferred interest financing and 0% introductory APR offers are options to help people manage out-of-pocket health and wellness expenses. Depending on the provider, you may be offered different financing options. Make sure you fully understand your payment obligations and what you have to do if you want to avoid paying interest.

Worth noting: If you pay more than the minimum amount due, you will make faster progress on the principal balance. A common strategy to avoid interest is to split the payments equally among each month of the promotional period.³ However, you are only obligated to pay the required monthly payment to keep your account in good standing. Missed payments could damage your credit score and could void your promotional offer or trigger a penalty APR or fee, depending on the offer’s terms and conditions.³

Managing Health and Wellness Costs With the CareCredit Credit Card

If you are looking for an option to help manage your health and wellness costs, consider financing with the CareCredit credit card. Get the care you want or need with easy, flexible financing options that allow you to pay for out-of-pocket expenses over time.^*** Use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile App to manage your account, find a provider on the go and easily access the Well U blog for more great articles, podcasts and videos.

Your CareCredit credit card can be used in so many ways within the CareCredit network including vision, dentistry, cosmetic, pet care, hearing, health systems, dermatology, pharmacy purchases, and spa treatments. How will you invest in your health and wellness next?

Author Bio

Dawn Papandrea is a journalist with more than two decades of experience covering personal finance and consumer issues. She has written for leading financial publications and organizations, including U.S. News & World Report, Investopedia, Bankrate and others.