We received this in the mail. We always discard these but my wife had heard about this from a friend and read the details. We knew there must be a catch so we looked for it. (I couldn’t find the footnote for that asterisk, but I’m sure it’s somewhere in there :))
Discover’s agreement then goes on to talk about Finance Charges and Transaction Fees not applying to the Required Transaction amount, the date a transaction posts may be later than when you charge, etc.
No one gets a free ride. So there must be something in it for Discover. They must make a profit, so where would they get their money on 0.0% APR? :dubious:
We felt that Discover was counting upon human greed and slipshod money management. They just expected people to screw up and violate the terms. Discover could then start charging the regular interest rate on that balance transfer. So it should be fine if you payoff your card each month, right? We would just payoff the regular store/gas/etc purchases each month like we always do and paydown that transferred auto loan with the monthly payments we were sending to the credit union. Simple, right? Well, it is more insidious than that!
This was the last paragraph on the last page. My wife spotted it (she’s smart, but how she can think that well at 10pm is beyond me! :)). She called Discover and you can get the truth if you ask the right questions!
Imagine you charge $1500/mo and balance transferred in a $10000 auto loan. You’ve charged more than $50/month and you pay on time and no terms are violated. In fact you pay $2000/mo and $1500/mo would go to the regular charges and $500/mo would go to the auto loan, right? Wrong.
The statement above, verified with Discover, says that all monies paid to the account will go first to pay the low APR special offers. So that $2000 would all go to the auto loan amount. Your $2000/mo purchases at the regular APR would sit unpaid. :eek: And it would rollover to the next month and incur finance charges. And on and on until you paid off the auto loan amount. By that time, the regular charges have been building up month by and And accruing finance charges! I could actually see this bankrupting people! 0.0% APR FOR LIFE - because it’ll probably kill ya first.
Plus, Discover also makes merchant servicing fees from all of those transactions. So not only are they making money off of their cardmember, they’re making money off the merchant that ran the charge, too.
Well, what if you just made $50 a month in purchases? Wouldn’t those essentially be interest-free, assuming you paid the minimum to avoid finance charges?
I do think it’s misleading, but I don’t think it’s evil. But if you understood the offer, you might be able to take advantage of it.
Let’s say you’ve got the $10,000 car loan. If you take advantage of Discover’s offer, you can transfer that loan to them and pay 0%. In exchange, you’ve got to charge $50 a month. But hey, $50 a month, plus the interest on that, is still probably going to be less than the interest you’re paying on the car loan. Let’s say the car loan is at 8% and Discover charges 12%. The car loan costs you $800 a year in simple interest, the Discover card costs you $672, less the value ($600) of the goods and services you charged.
The trick, of course, is to charge the minimum each month to avoid racking up credit card charges. And it wouldn’t be worth at all, unless you had: (a) a fairly good-sized balance to transfer; (b) a high or semi-high rate on the money to be transferred and a low or semi-low rate from Discover; and (c) the self-discipline to not charge up the Discover card.
That’s a new twist on the low interest rate transfer thing! I always knew it was a scam to get you with big balances that HAVE interest, but normally you could get around it by not using the card for purchases, guess Discover figured that one out, eh?
Anyone who had gotten a cash advance on a CC has experience with this. The interest on purchases will be the normal rate(figure 8% - 15%) but the cash advance rate will be around 20%. All payments go toward the lower interest rate balance until it’s paid off and THEN you start paying on the high interest cash advances.
It seems to me that it’s going to work this way:
You transfer a balance of $1000 @ 0.0%
You then make the required purchase of $50.00 at (We’ll use my current Discover APR) 13.99%
So now your bill reads:
Balance transfer 1000 @ 0.0%
New Purchases 50 @ 13.99%
Previous Purch. $ 0
So you figure send them $50 to cover the new purchases and you’re still golden, right?
As per the disclaimers (remember- apply to lowest apr first) you have just paid $50 to your interest free loan so you bill now reads:
Balance transfer 950 @ 0.0%
New Purchases 50 @ 13.99% + Finance charge of 7.00
Previous Purch. 0
Now it’s a new month and you have to make another $50 purchase to keep that 0.0% interest rate.
Now you have:
Balance transfer 950 @ 0.0%
New Purchases 50 @ 13.99%
Previous Purch. $ 57
Etc., etc., until you die.
That is if I’m understanding it correctly.
Oh, yeah…as for “paying the minimum to avoid finance charges?” Don’t think it’ll help you.
:rolleyes:
HARMLESS, why are you including a $7.00 finance charge? Does Discover automatically charge one every month? (I don’t have a Discover card.)
If you had a $1000 loan transfer, and you’re paying it off at $50 a month, that’s 20 months. In that time, you’d have to charge $1000 on your Discover card, charging it up at the same rate you reduce the first loan, and you’d pay 13% on the new balance. But even if the original (transferred) loan was also at 13% (a pretty good rate for an unsecured, personal loan), you’d still be paying less than you would if you just paid the $1000 loan, because you’re not paying 13% on $1000 every month, but only 13% on whatever the balance is that particular month ($50, $100, $150, $200, $250, etc.)
So it ain’t necessarily bad, even under those circumstances.
So why don’t you just do what I did when Citi sent me a similar offer? Transfer a huge balance off of another card, and use the other card for any purchases you might need to make. These terms are fairly common, because credit card issuers do not make money off of collecting on 0% lines of credit.
I moved around $10,000 of of all my other cards onto the Citicard and have been paying 0% on it since. I use either the Discover or my Providian Visa for purchases, and pay them off ASAP. Why turn down an offer of 0% just because it means you won’t want to use the card for anything else?
If 13.99% is an APR, the finance charge would be .1399 * 50 / 12 = 58 cents. If they’re really charging you 13.99% interest every month, you’d be better off borrowing money from your friendly neighborhood loan shark.
You’re right though - this is purely a scam to get you to run up charges at the high interest rate, all while thinking you’re doing great with 0% on the transferred amount.
That’s been going on for ages, American Express Blue card does this, as does Barclaycard, the trick is to get the card, transfer a sum to it and then use it as a loan, destroying the card so you cannot use it again is a very good idea.
Except, CASDAVE and BAMBI, destroying the card and never using it again is exactly what you can’t do. The OP says Discover said:
So you’ve got to tick up your balance 50 bucks a month. No doubt this is to prevent exactly the sort of loan-shifting you’re talking about. But as I said, I think that even if you’re accumulating a new balance at $50/mo., plus interest, you’re probably doing better than paying a higher interest rate on a large-ish existing loan – assuming you’re making large enough payments to pay down the existing loan in a reasonble amount of time. At some point (as the loan reduces) the value of 0% on it will be exceeded by the cost of the balance you’re carrying at 13% on the Discover card purchases. You’d have to watch the balances pretty carefully, and be very disciplined about paying the transferred loan off and not charging up the card. So I agree that it’s not a great idea for most people. And I totally agree that the way that it’s presented is misleading.
Ah. Shows what I get when I don’t read the OP carefully. None of the offers I’ve ever gotten from Citi have ever said anything like that, so now I feel like an ass for being all uppity about what someone else’s Discover offer said. :smack:
:smack:
Yeah, I’m not so great at the math.
Probably the main reason for my error is that I’ve never had a credit card bill with a balance that low.
But, yes, Jodi, they do add on a monthly finance charge every statement on purchases (fancy “deals” excluded).
I think the last bill I paid, the minimum due was $69, with something like $45 for the finance charge. :rolleyes:
