When is 0% APR not 0% APR?

Why when its 6% annualized of course.  I just got this offer in the mail the other day:

As you can see, they are offering me zero present interest on all balance transfers, through October 2011. This basically equates to 0% for 6 months. Unfortunately, just a few sentences later you find that:

“Keep in mind these offers include a transaction fee of either $5 or 3% of the amount of each transaction, which ever is greater.”

While it was nice of them to not have this detail the small print, this 3% for 6 month period is effectively 6% on an annualized basis.  So either way, its not such a great deal.  If you are transferring the max of $6,350 you are going to pay at least $190.50 in transfer fees.  This amount of course is instantly added to your balance, so if you don’t pay it off the entire balance by the end of 6 months, you pay interest on the that $190.50 along with the rest of your balance.

Of course, this might actually be a good choice if you are on some other higher interest credit card paying 29% in interest.  However, unless you pay it off quickly (6 months) the rate goes right back up to 13.25% (in my example).  You could alternatively use the 3.99% offer for 18 months, but you still then have to pay the 3% transfer fee.  Finally, and the wording is confusing, it appears they start charging interest at the 13.25% “on the transaction date”, so unless it is all paid off within 6 months or 18 months, you are paying both the 3% fee, but also the 14% on both the transferred amount and the 3% fee. 

It is frustrating to me, how once you get in the debt trap there are a million-and-one fees and tricks designed to keep you there.  I like to follow the “Don’t buy stuff you cannot afford plan” and avoid this nonsense altogether.


Buy gold online - quickly, safely and at low prices

1 Response to “When is 0% APR not 0% APR?”

  1. Below Your Means Favorites of the Week | Below Your Means

    […] do balance transfers make sense? – I have posted about balance transfers in the past and they often are not as good of a deal as they seem.  My Personal Finance Journey has a pretty good post on the […]