Many shoppers will be finishing up their holiday shopping this weekend. Depending on your budget, you might be deciding between using a credit card or taking advantage of an in-store financing deal.

Chip Lupo, an analyst with WalletHub, advises shoppers to approach financing offers with caution.

“Make sure that you approach any financing deals very, very cautiously,” he said.

He pointed out the risks of deferred interest plans, which are often advertised as 0% interest for an extended period. These deals can catch consumers off guard if they don’t fully understand the terms.

“Retailers use them all the time,” Lupo explained. “A lot of people get burned on them because they don’t do their homework.”

The key issue with deferred interest plans is that missing a payment or failing to pay off the full amount by the end of the promotional period can trigger retroactive interest charges.

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“If you’re financing $1,000 and you come up a dollar short after the promotional period, close to 30% interest is going to apply to that $1,000 for the entire 18 months,” Lupo warned. “And then you’re going to wind up being paying interest on the interest. So that new balance is going to be accumulating interest daily, and that’s going to be compounded until you pay the loan off.”

To help consumers make informed choices, WalletHub has created a “naughty or nice” list based on the transparency of stores offering deferred payment plans.

“The ones you have to be careful of are Best Buy, Lowe’s, and Amazon. All of those are going to try to push you into some kind of deferred interest plan,” Lupo said.

Stores like Target, Costco, and Apple, however, make the “nice” list by avoiding deferred interest tactics altogether.

For those using credit cards to finance holiday purchases, Lupo shared the importance of knowing your card’s benefits. Some credit cards offer perks like price-drop protection, which refunds the difference if an item’s price drops, and coverage for damaged or stolen items.

“You do want to take advantage of benefits because they can wind up saving you a good deal of money over the long haul,” Lupo added.

Another option growing in popularity is “buy now, pay later” (BNPL) services like Affirm, Klarna, or Afterpay. According to data from the Federal Reserve Bank of Philadelphia, 31% of individuals used BNPL in 2021, and the trend is particularly popular among younger shoppers and those with lower credit scores.

While 69% of users report satisfaction with BNPL, Lupo stressed the importance of understanding the terms. Convenience is often cited as the primary reason for trying BNPL, but failing to meet repayment terms can still lead to hefty fees.

By carefully weighing your options, reading the fine print, and taking advantage of available perks, you can make smart financial choices and avoid falling into a credit spiral this holiday season.