When is 3.99% not 3.99%?

When its actually 7.8% of course!  As a follow-up to my previous post on 0% balance transfers.  I figured I would at a deeper look at the other side of the offer: 3.99% for 18 months.  Now, if you are transfering a balance from a credit card that is at 29% interest, 3.99% sounds like a sweet deal.  But before you get too excited you need to read the fine print and understand how the transfer works.

For this example, lets assume we transfer $6500 to the new card and we plan to pay the balance off entirely during the promotional 18 month period.  You might the payment and interest schedule to look like this:


Unfortunately, that isn’t how it works.  This is because the 3% transfer fee is applied on the “transaction date” so your starting balance is actually $6500 x 1.03 or $6695.  This is a fee of $195 that is financed along with the rest of the balance at the 3.99% rate.  So not only do you pay interest on the balance, but you are charged a transfer fee and you have to pay interest on the fee.  The result is that you will pay an additional $8 in interest over those 18 months and your total payments above your original balance will be $213.37 in interest and $195 in fees, or a total of $408.37.  Plus, to pay off the balance in 18 months your monthly payment has to be $384 instead of $373 or $11 extra a month.

When you take these factors into account, the transfer (assuming you pay it off entirely in the 18 month period) is effectively being financed at an 7.8% interest rate.

The question is, is transfering the balance a good deal?  I believe the answer is “yes with an if”.  Yes, if:

  • You are transfering from a card with an interest rate of greater than 7.8%
  • You pay off the entire balance within 18 months
  • You are never late on the payments (if so, they jack up everything and the savings are gone in a flash)

Here is the full breakdown with fees:


This posting is provided “AS IS” with no warranties, and confers no rights.

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1 Response to “When is 3.99% not 3.99%?”

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