Personal Finance

Holiday shoppers at the Time Warner Center in New York.

Scott Mlyn | CNBC

You’ve likely heard the pitch, “Would you like to apply for a store card?” as you’re making purchases.

Many times, you should just say no to that offer, new research shows.

That’s because many stores will try to lure customers with terms like “0% interest” or “special financing.” Once the initial time period ends, that low introductory deal turns into something much worse, including retroactive interest applied to the initial amount you charged.

For example, if you buy an $800 TV and have a $20 balance when a six-month introductory offers runs out, you will be charged interest on the entire $800 purchase.

“That extends the timeline you had thought that you would be paid off by that much longer,” said Jill Gonzalez, senior analyst at personal finance website WalletHub.

WalletHub found that shoppers can spend as much as 27.5 times more on interest with deferred-interest deals compared to a 0% credit card.

What’s more, 82% of respondents surveyed said they do not know how deferred interest works.

The lending practice is very common among retailers. WalletHub found that 88% of store credit cards with 0% offers are deferred-interest deals.

And many of the brands including these offers are familiar household names such as Apple, Amazon and Best Buy.

Some retailers are more upfront about the retroactive interest than others, WalletHub found. Apple, Home Depot and JC Penney came out on top of the rankings when it comes to the transparency of their disclosures.

“You have to have a plan and really keep track of automated payments … to be done by the time that six months is up,” Gonzalez said of the deferred-interest deals. “Or else, it’s almost like that promotion never existed, because you wipe away any of the savings that you had.”

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If you’ve decided to go ahead and open a new line of credit, a traditional credit card is often a better deal, Gonzalez said. That is because they typically offer longer time periods for 0% interest and lower annual percentage rates once those offers expire.

The average store credit card has a 28.86% APR, according to WalletHub. Meanwhile, the average credit card APR for individuals with good credit is 20.94%.

Alternatively, many retailers offer store cards with additional same-day discounts, which are usually better deals than special financing, Gonzalez said.

If you do decide to sign up for a deferred-interest deal, the key is to make sure you thoroughly understand it. Be familiar with the fine print, the terms of the introductory offer and how interest will be charged, Gonzalez said. And most of all, have a plan to pay the balance off.

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