Buying Tech: Don’t Get Trapped by Deferred Interest Deals

Paying bills online is incredibly convenient, but there’s one downside I learned about the hard way this month. No, I’m not talking about identity theft or hacking or any of the scams that make you a victim. I’m talking about not paying attention, something that’s very easy to do when you no longer have to look at a bill, tear off the top, write a check, and then mail it.

All of those steps lead you to pay attention. But when you have an online bill to pay, it’s click, click, click and you’re done. Little thought required.

What brings that to mind was my forgetfulness about a deferred interest account I had used to buy a laptop last summer, using a service called BillMeLater. The deal was pay this thing off in six months and there’s no interest.

I didn’t forget about paying. I was sending a $100 a month to BML, without really giving it much thought. Bill arrived by email – click, click, click – it was paid. However, since I wasn’t paying all much attention, I somehow managed to confuse myself into thinking that I had one year to pay. It probably happened because I’ve used deferred accounts a number of times to buy relatively expensive things and always had a year.

Before I go further, I want to be clear: this was my mistake. The terms of the financing are spelled out on the electronic bills — if I had bothered to look at them.

Here’s the deal. This particular account takes an average of your unpaid balance over the first six months you’ve had it. I had an unpaid balance of $299 at the end of six months. Now, if I had deposited that amount of money into a bank account at the beginning of March, the interest rate clock would have started ticking on that day to calculate such interest as would be due to me.

But deferred accounts don’t work way. Since I owed that money at the end of the six-month grace period, I was charged six months worth of interest on $299 at 19.99 percent. Ouch!

High as that is, BillMeLater is actually more generous than some of the other outfits that offer deferred interest. Some will charge interest on the entire amount going back to the date of purchase, even if you’ve paid off say 75 percent and then sock you with interest as high as 25 percent or 30 percent.

The feds took a look at deferred interest cards back when Congress was debating financial reform in 2010. The Credit Card Act of 2010 has pushed banks and retailers to lengthen the amount you have to pay (six months is now a minimum), they’ve had to add minimum payment requirements and give clearer warnings about the consequences of not paying off a balance after the promotional period expires. (There are other provisions, as well.)

Consumer advocates wanted tougher provisions; some even thought this type of account had so much potential for abuse it should be banned. But that’s another discussion.

My point is pretty simple: either avoid this type of account, or pay attention. Do something like put a note on your calendar well in advance of the end of the grace period so you don’t forget. If not, you’ll be sorry.