Are Credit Card Offers Of Zero Percent A Good Deal?

31 Jan Are Credit Card Offers Of Zero Percent A Good Deal?

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.

“ConnecticutGene Melchionne is a bankruptcy lawyer covering the entire State of Connecticut. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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