Understanding Credit Card Promotional Financing

Promotional financing plans are an opportunity for businesses to attract customers and close sales. Many companies take advantage of them, from furniture manufacturers to dental practices. 

For customers, on the other hand, that is one of the most convenient financing options. No matter if you are planning a home improvement project or purchasing a new piece of tech, promotional financing may help, as long as you keep up with your personal finance statistics. 

It allows you to pay for expensive products with a credit card and pay monthly for a specified period. 

So, what are different types of credit card promotional financing? Let’s find out!

Deferred Interest Offers

The name of this promotional financing offer is self-explanatory. It allows you to purchase products now and pay for them later. 

When you will need to cover interest depends on the credit card issuer’s terms. You can choose your interest period. It can be as short as six months or you can stretch up to 24 months. During that time, you will not have to pay interest. However, it will still be added to the original purchase amount. 

If you do not pay the card’s balance in full by the end of the promotional period, you will have to pay the interest that accumulated since the purchase date. 

Say you want to apply for a Humm90 interest free credit card in Australia. During their interest-free promotion, you do not have to pay any interest on your humm90 Mastercard purchase. Interest is payable on any balance outstanding after the expiration of the promotional period, as well as on purchases that are not covered by the interest-free offer.

The Benefits of Deferred Interest

The advantages of deferred interest promotions are obvious. 

From a budgeting viewpoint, these offers make big purchases more manageable. During the interest-free promotion, you do not have to pay any interest on your credit card purchases. 

Since the interest rate is low, cards with deferred interest promotions are more attractive than credit cards with higher interest rates.

The Disadvantages of Deferred Interest

If you can pay off the balance in time, you are good. 

The only disadvantage of deferred interest is that, when the deferred interest period expires, interest is payable. 

Also, the interest rates can be high, so choose your credit card services wisely.

No-Interest Promotional Financing

People often confuse deferred interest with zero-interest promotional financing. 

No-interest promotions are often marketed as “0% APR for 6/12/24 months.”  APR is the annual percentage rate or the rate of interest you will pay on your balance. And, 0% means you pay no interest on the purchase during the interest-free period.

However, that does not mean you do not have to pay anything on your card. Zero percent promotions require you to make minimum monthly payments on time. If you fail to meet them, a card issuer may decide to cancel your promotional financing offer. 

Also, once the promo period is over, you will need to pay interest on the remaining balance. 

Deferred Interest vs. Zero-Interest 

If you are still not sure what the difference between deferred interest and zero-interest promotional financing is, here is a brief example to help you. 

Say you want to purchase a $500 TV. Since you have no cash on hand, you rely on promotional financing offers. 

Now, we have already emphasized that, if you pay the whole sum during the promotional period, you do not have to cover the interest rate. 

But, what happens if you pay $400 of $500?

If you purchase a fridge using deferred interest offers, you will owe $100 plus the accrued interest during the first 12 months. 

If you use a card with zero interest, its issuer does not interest retroactively if the whole balance is not covered. Therefore, you would have to pay only the remaining $100 for the TV itself.

What to Keep in Mind when Using Cards with Promotional Financing Offers?

• Just because deferred interest and zero-interest offers are affordable, remember that you are still borrowing money you need to repay.

• Always familiarize yourself with the length of the promotional period. That way, you ensure you can repay the whole balance and avoid paying the interest rate.

• A promotional rate is more affordable than the usual rate on your card. However, the interest rate after the promotional period is high. 

• Read the credit card issuer’s agreement terms and conditions. For example, some promotions offer zero interest only for purchases above a specified amount.

• Ask what you will have to pay every month to pay off the promotional balance on time. That way, you will pay off the entire balance seamlessly without being charged deferred interest. 

• We already mentioned what the minimum payment due is, but it is often not enough to pay off the whole sum by the end of the promotional period. For example, say you have made a $1,500 purchase with deferred interest for 12 months. Your monthly minimum payment would be approximately $30, but you should still be able to pay at least $125 monthly to zero out the balance and avoid paying interest charges. 

Over to You

Promotional financing with credit cards provides you with multiple benefits. They allow you to make big and urgent purchases and pay for them monthly over a specified period. As long as you stay on top of your calendar and cover your minimum monthly payments, you have nothing to worry about.