Deferred Interest

When lenders or credit card companies offer products with limited zero-interest periods and a consumer is unable to pay off the balance by the end of the zero-interest period or makes a late payment, they will be required to pay retroactive interest, or deferred interest, equivalent to the interest they would have avoided had they repaid the balance by the deadline. This interest may be calculated on the initial credit balance, not the balance at the end of the zero-interest-period. Mortgage lenders also charge deferred interest on certain mortgages through products such as low-start mortgages where interest payments are reduced for a set period but the reductions are capitalised i.e. the difference between the interest that is actually payable but deferred is added to the principal amount.