Retroactive Interest Charges

The following is a guest post by Kari Luckett.

Credit cards are full of hidden fees and charges, but thanks to the CARD Act, most people are already aware of what those fees are; annual fee, balance transfer fee, late fee, etc. Easy enough, but have you ever heard of retroactive interest before? Retroactive interest is a typical practice credit card companies used before the CARD Act came around. Let’s take a look at what retroactive interest is so you know what to look out for in the future.

Retroactive Interest & The CARD Act

Retroactive interest occurs when a credit card company increases your interest rates on purchases already made. For example, if you choose to finance a purchase with a store card and were unable to pay it off in the introductory time-frame, usually at 6, 12, 18, or 24 month periods, they can now charge you back-interest on the previous months. The CARD Act banned arbitrary interest rate increases, which includes retroactive interest, meaning banks can’t raise your rates on your existing outstanding balance unless you have failed to make payments for 60 days or more. Banks are getting around that though, by stating in their contract that they are allowed to increase rates that were agreed upon, which you can see below. If interested, you may read the terms of the CARD Act on retroactive rates clearly, here.

Cards With Retroactive Interest

Most store credit cards will come with retroactive interest. Yet another reason why you should steer clear of opening a credit card at check-out in order to get 15% off your purchase. It’s just not worth it! If you ever hear someone say the words “deferred interest,” you should definitely run in the opposite direction.  Here are a few cards where the words “deferred interest” are thrown around:

·       Amazon.com Card– You have the option for 6 month, 12 month and 24 month financing. The fine print states, “No interest if paid in full within 6 (or 12 or 24) months. Interest will be charged to your account from the purchase date if the promotional balance is not paid in full within 6 (or 12 or 24) months.”

·       Apple Card– You have the option for 6 month, 12 month and 18 month financing. The fine print states, “If the deferred Financing Purchase is not paid in full by the Promotional End Date or if you make a late payment, interest charges will be assessed for the entire promotional period at the then applicable rate for Purchases during the promotional period (currently 22.99%).”

·       Lowes Card– You have the option for 6 month financing. The fine print states, “No interest if paid in full within 6 months. Offer applies to any Lowe’s® Consumer Credit Card purchase or order of $299 or more. Interest will be charged to your account from the purchase date if the promotional purchase is not paid in full within 6months.” Kudos to Lowes for highlighting the deferred interest.

·       Office Depot Card– You have the option for 6 month and 12 month financing. The fine print states, “If the balance is not paid in full by the end of the promotional period (or, to the extent permitted by law, if you make a late payment), interest charges will be imposed from the purchase date at the purchase rate on your account which is 27.99% APR.”

If you are not someone that typically carries a balance, then retroactive interest won’t have any real effect on your card choices. If you find yourself in trouble with one of these deferred interest cards, try transferring the balance to a low-interest, reputable card with 0% introductory APR to close the old account and pay off the balance in a timely manner.

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Kari Luckett writes about financial topics for CompareCards.com. Kari is the content strategist for CompareCards.com.