We’ve all shopped for appliances, furniture, or other big ticket items and seen the signs for interest-free or “same-as-cash” store financing. At the same time, plenty of credit cards offer 0% APR promotional financing for new purchases.
These two are not the same, and it can be a challenge to sort through the fine print of these offers. If you need to find financing for a large purchase, which type of offer should you choose?
How In-Store Financing Typically Works
With most financing programs offered by retailers, customers are presented with so-called “same-as-cash” offers. For example, a financing offer from a furniture or electronics retailer might say something like, “Three years same as cash,” or “Make no payments until 2020.” Of course these offers sound great, but they are full of a hidden dangers.
These kinds of programs are called deferred-interest financing, and they allow you to avoid interest on your purchases if, and only if, you pay down the entire balance in full before the promotional financing period expires. To do so, you will have to pay more than just the minimum payments. You’ll need to pay enough every month to clear the balance before that expiration date — and ideally, a month in advance, just to be safe.
If there is any remaining balance, no matter how small, at the end of the specified time period, you will owe interest on the entire balance going back to the date of purchase. This means that making your last payment a day late, or just a dollar short, could result in hundreds of dollars of interest charges.
Another way of looking at deferred-interest financing is that interest is always being accrued during the promotional period, but it can be waived if you have a zero balance on the last day of that period. (See also: What You Don’t Understand About Credit Card Interest Rates)
How a Credit Card’s Promotional Financing Offer Works
When you open up a new credit card account that offers a promotional 0% APR on new purchases, you will always avoid interest charges on those purchases for the entire length of the offer. If you pay off your balance before the promotional financing period expires, then you don’t pay any interest at all. And if you have a remaining balance when the 0% deal ends, you begin to incur interest charges only on your remaining balance. Unlike the deferred-interest financing option, you’ll never have to pay interest on previous balances, regardless of whether you are able to pay off your entire balance during the promotional financing period.
Some retailers offer credit cards and store charge cards that feature promotional financing with terms that are similar to other credit cards, instead of deferred-interest financing, so don’t necessarily lump all store financing deals together.
Which Is Better?
Deferred-interest financing options offered in stores can be convenient, and they may even have longer promotional financing periods than most credit cards. Another advantage is that these in-store offers typically have lower credit score requirements than the most competitive credit card offers from banks. However, they can be extremely risky, as even the smallest mistake can be very costly.
It’s safer to go with a credit card offering 0% APR promotional financing, assuming you’re able to qualify. What’s more, you can use an offer like this to make purchases from any retailer, whereas the deferred-interest deals are limited to purchases at the stores offering them.
But if you have less than perfect credit, you may not have a choice. If you can find a store that offers its own deferred-interest credit or charge card, it will be easier to qualify for than your typical credit card with 0% APR financing.
See Wise Bread’s top picks for credit cards offering 0% APR on new purchases.