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Fall for this common trick when you shop and you could end up paying 27.5x more interest, analyst warns

"Being ignorant to deferred interest can be particularly costly during the holiday shopping season."

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More than 2 in 5 consumers, 41%, are willing to go into debt to fund their holiday shopping, according to a new CreditCards.com survey. Some of them could be in for a bigger bill than expected: Another report, from WalletHub.com, finds that 56% of people don't understand how a common retailer offer called deferred financing works. 

These special financing deals offer no interest on purchases so long as the balance is paid off within a set period. But if you fail to meet all the terms, the fine print allows the retailer to charge interest retroactively on the original balance. If that happens, a shopper could end up spending 27.5 times as much on interest compared to using a 0% credit card offer, WalletHub estimates.

"Being ignorant to deferred interest can be particularly costly during the holiday shopping season because it is a trick that's common among store credit cards and retailer financing offers in general," WalletHub analyst Jill Gonzalez said in a statement. 

It can be especially painful because such financing tends to be on offer for big-ticket purchases such as appliances and electronics, says Matt Schulz, chief credit analyst at LendingTree: "It's the classic example of, what you don't know can cost you."

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Be wary of 'special financing' offers

Ideally, keep credit purchases to what you can afford to pay off each month, experts suggest. If you do have a big-ticket purchase in mind that could require financing, research retailers' offers before you visit the store or jump on a sale online, says Schulz.

"The term 'special financing,' when you see it at a retailer, is really a trigger that should tell you to check to see if there's deferred interest involved," he says. "Because there's a good chance that there is."

Retailers that offer deferred interest deals include Amazon, Best Buy, Bed Bath & Beyond, Dell, and Zales, among others.

A key detail to note: how much time you have to pay off the debt and avoid interest. That isn't always straightforward, cautions Linda Sherry, director of national priorities for Consumer Action. "Sometimes it says one year interest free, but one year might be 11 months," based on the timing of the purchase and statement cycles, she says.

Planning ahead can help you compare retailer financing offers with other options, says Schulz. "You are really better off going with a traditional card with 0% off purchases [for new cardholders], if you can get one," he says. Even "Buy Now, Pay Later" services might be a smarter option than deferred interest financing, so long as you understand the terms.

"It's just really important to not be rushed into a decision when you're making a big purchase," he says. "That's when people make bad decisions."

Rudine Manning contributed additional reporting to this story.

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