Have you received an offer for 0% financing from your credit card lately? A careful look at the terms of such offers reveal the continuing traps of the finance industry on consumers. Time for some grade school math and a different way of looking at the world.
Consider the offer of zero percent for six months. Free money, right? Such offers usually contain a service fee of 3% of the money advanced. So a consumer who takes advantage of a $1,000 offer will pay $30 for the privilege. A three percent fee is equivalent to a 6% annual interest rate. ($1000 x 6% for one year ÷ 6 months = $30) That is to say, if you borrowed one thousand dollars for six months at six percent, you would pay thirty dollars in interest. It is one and the same.
An offer at 2.99% for the same time is not the same. If you borrowed the same $1,000 for six months, you would only pay $15.00 in interest. Which is the cheaper deal, 0% or 2.99%?
The real problem is what happens after the “special” deal ends. With the zero percent offer, the regular interest rate for the credit card applies if the full balance is not paid off at the end of six months. That can mean a 12% interest rate or more. Now the cost of that one thousand dollars is even more. However, the 2.99% offer that was for one year and even though it would appear to be a higher interest rate, the cost of that credit is even less after the six months is up.
Even though you might have the best of intentions to pay off that balance when the offer ends, it is always best to plan for the worst. Think carefully about these terms when considering accepting a credit card’s “special” offer.
Tagged as:
credit cards,
interest rates,
introductory rates,
special offers
Mr. Melchionne is a graduate of The University of Connecticut (BA 1977) and Drake University School of Law (JD 1980) where he received the American Jurisprudence Award for academic excellence. Most recently, Mr. Melchionne was appointed to the Commission on Mortgage Foreclosures by Connecticut Supreme Court Chief Justice Chase Rogers to recommend changes to procedures to protect consumers in the Connecticut Courts in foreclosure cases.
Since 1980, Mr. Melchionne has focused his practice in the areas of consumer bankruptcy, workouts and foreclosure defense in distressed real estate markets, real estate transactions, condominium law, commercial litigation, business organizations and probate. Prior to opening his office in 1990, Mr. Melchionne was the Vice President of the Waterbury Credit Bureau and was associated with Grady & Riley in Waterbury, Connecticut and DiPietro, Kantrovitz & Brownstein, P.C. in New Haven, Connecticut. From 1990-1998, Mr. Melchionne was of counsel to Bender & Anderson handling that firm's complex litigation and trials. In addition to his practice, Mr. Melchionne was an adjunct professor at the American Institute of Banking and Teikyo Post University teaching bankruptcy, real estate, commercial and consumer law. Mr. Melchionne also advised the Corporation Counsel's office for the City of Waterbury on bankruptcy and foreclosure matters and mentored junior attorneys in that office.
Mr. Melchionne was appointed State Chair for the National Association of Consumer Bankruptcy Attorneys (NACBA). He acts as liaison between the national organization and Connecticut attorneys who are members of the Association.
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