0% interest. It sounds like such a good deal, but is it really? It pays to take a look at the entire offer.
I took an offer from my own mail. Looks pretty good in this case. They're offering 0% APR on purchases until July 2005 IF I transfer a balance over to them. The APR for whatever I transfer is 7.49% fixed rate, and also applies to purchases if I choose not to transfer a balance. Now, my credit is probably better than average, so you may not receive this kind of offer. This APR remains in effect as long as I make my payments on time.
If I miss payments, the APR goes to 13.49%, and if I really blow it and miss for two months in a row or default, it goes to 23.00% - ouch, but that's what happens to almost any account if you don't pay it. The late payment fee is $35 and there is no annual fee.
I would probably avoid cash advances on this one, as not only is the APR 19.8%, but there is a cash advance finance charge transaction fee of 4% with a minimum of $5. The overlimit fee starts at $15 and depends on how much overlimit the account is.
In this case, that is not a bad deal. But not everyone can get this kind of deal. Low interest rates do not always go with 0% offers.
Let's say you're comparing two offers. One is 0% APR for one year on both the balance transferred and on purchases, the other is 7.49% on both the balance transferred and on purchases. Which is better?
Well, that depends on how long you are going to keep your money in there. If you can pay off in one year, get the 0% and make sure you make all your payments on time to avoid whatever the default APR is.
If it's going to take you longer than the one year in this example, you need to consider what the APR is after your interest-free year is up. Let's say it is 13.49%. Yes, I am still taking numbers from that same offer.
If you're keeping an even $1000 balance, paying enough to cover new purchases and not buying so much that your balance goes higher (a rare situation, I know, but I'm keeping the math easy today), then at the end of the second year the 0% is still a better offer, as you would have paid $134.90 in interest on that credit card, but $155.41 on the 7.49% credit card. However, you may be noticing already that the two are getting very close, and soon the lower rate will be by far the better card.
At three years, it will have cost you $241.95 on the 7.49% credit card but $288.00 on the originally 0% credit card.
Now, you may be saying "why can't I just get a new 0% APR credit card when the old one runs out?"
Certainly you can do that, but be careful. Changing credit cards often damages your credit score. A part of your credit score is determined by how long a given account has been open. It always pays to think about your credit report when getting a new credit card, particularly if you hope to buy a house or a car in the future.
The best credit card for you depends on how soon you will pay it off and the details of each offer. Watch out for high interest rates, high fees, annual fees and so forth to get the best deal for you.
Site Map - Privacy Policy - Disclaimer
copyright © 2004-2008
