Take the Bait On No Interest Financing?

No interest, no payments for 12 months! That's a typical financing offer by furniture and electronics stores. I noticed recently some airlines started offering the same type of financing. For example United Airlines has a United Travel Card which offers no interest or payments for 90 days on qualifying purchases. American Airlines' credit card offers 6 months no payments, no interest on purchases from aa.com. These cards are specific to the airline. They don't have a Visa or MasterCard logo. You can't use them for other purchases. If there is no other discount for paying now, should you take the no-interest financing?

Mathematically, maybe. If you keep your money earning interest, and you pay the same amount X months later, you come out ahead, although you don't earn a cash or miles rebate on these. It's the same as the 0% credit card balance transfer game you may have read somewhere.

Of course the stores or the airlines making the financing offer are not foolish. They use the financing offer as an incentive for you to buy from them. The actual financing is usually outsourced to another company. For example United uses Chase and American Airlines uses Citi. The financial company banks on the percentage of people who can't pay in full when the bill comes due. That's when the fun starts. Interests are silently accruing on the side during the no interest, no payments period. If you can't pay off the entire balance before the due date, you owe interest retroactively. And we are talking about interest rates up to 25% a year.

To be fair, the retroactive interest is disclosed. From the American card:

"FINANCE CHARGES accrue on a promotional balance (which includes the promotional purchase and related fees for optional credit protection) from the transaction date and all accrued FINANCE CHARGES for the entire promotional period will be added to your account if the promotional balance is not paid in full by the end of the promotional period or if you fail to make a required payment on your account when due. "

So they show you both the bait and the trap. If you are careful, you can take the bait without being trapped. If you are not, you will be sorry. I think most people should say no to the bait. It's not worth the aggravation.