Deferred Interest Payment Plans Banned
I wrote on Monday about 0% APR, Same As Cash, and No Interest No Payments. Upon closer reading of the final rules adopted by the federal regulators in December, I realized that deferred interest payment plans like "same as cash" or "no interest no payments" are actually banned after July 1, 2010. Good riddance! I don't know why the regulators didn't include this change in their highlights of changes. They really should have, because it's a major win for the consumers. It shouldn't be buried on page 114 of a 367-page document. Maybe because it wasn't included in the highlights, news media like New York Times and Wall Street Journal didn't report this bit either. You heard it here first. The final rules are long and technical. Here's the pertinent part:
As discussed above, deferred interest plans are typically marketed as “interest free” products but many consumers fail to receive that benefit and are instead charged interest retroactively. Accordingly, as with the prohibitions on other repricing practices discussed above, prohibiting the assessment of deferred interest will improve transparency and enable consumers to make more informed decisions regarding the cost of using credit. Accordingly, the Agencies conclude that an exception to the general prohibition on rate increases is not warranted for the assessment of deferred interest.
0% APR, Same As Cash, and No Interest No Payments
Do you know the difference between "0% APR for 12 months" and "12 months same as cash"? What about "no interest, no payments for 12 months"? If you are offered all three payment plans, which one do you prefer?
If you pay off the balance within 12 months, all three work pretty much the same. You basically have an interest-free loan for 12 months. Things start getting interesting (pun intended) when the 12 months end.
The 0% APR deal is usually used by credit card companies for balance transfers or purchases on a new credit card. During the promotion period, you are required to pay minimum payments, say 2% of your outstanding balance. After the promotion ends, if you still owe a balance, you start paying interest on that balance at the regular credit card rate.
Subscribe
