What's the Catch (Credit Card)

A UK bank got heavily slapped on the wrist for this sort of comedy
You transfer your £5000 debt at zero% - fair nuff you say i dont pay any onterest on 5K, however what they did not make clear was that any additional borrowing on the card was charged at a silly high interest rate. So whilst you may think zipydadodahday im off to spend another 500 sovs, the bank are jacking themselves silly, because any repayments you make comes off the 5000 at zero percent. The additional 500 you have just spent will continue to accrue interest at daftly high rates that would make a loan shark feel bad about it and offer you a loan of a tenner, until you have cleared your 5000 and then start to chip away at all the interest you have accumulated.

If you want to sward cards - look for a card issuer who pays off the most expensive loans 1st, a couple in the UK do now.

And yes they do know which dollars in which loan are at which interest rate, that 5500 is not one big fat happy loan at zero percent,


It’s possible to game the system, but it becomes critical to keep ultra-detailed records, read all fine print (I nearly got caught by this once - a balance transfer that would have saved me ~$100 in interest but cost me $70 in transfer fees; in the end I decided the extra complexity wasn’t worth the savings) and for God’s sake, make your payments well before the due dates else you risk late-fee shenanigans that might turn your 0% APR to 19%+. If you think you might thoughtlessly use a card with a $5000 balance transfer to buy $30 worth of gas, avoid the whole mess.

And go to a good public library and check out an episode of Frontline called “The Secret History of the Credit Card”.

One other nasty trick that I didn’t see mentioned (I think):

When you get those great deals that say “No interest for one year” when you buy a computer at Best Buy or something like that, they have fine print that says that the whole loan must be paid off or else the entire zero-interest deal is off: they calmly recalculate your loan as if they had charged their regular interest rate (e.g. 17%) from day one and then charge you for all of the interest.

In other words, if you buy a $1500 computer system and still have $5 on the card at the end of the year, you suddenly could see a year’s worth of interest on $1500 slapped on to the card (hopefully they prorate it, so if you paid $1495 the first month, you would be charged interest for 1 month of $1495 and 12 months of $5).

Of course, they use the other nasty tricks as well such as maintaining different buckets for the money and applying your payments to the bucket that is most advantageous to them.

You have to be really disciplined to take advantage of the 0% offers. The banks are betting that the least disciplined people find the offers most attractive, and they’re probably right. However, I’ve used them fairly frequently and to good effect. I’ve also done quite a few of the no-interest loans from store and paid them off on time without interest or other charges. The key is making sure that you can and do make the payments.

The banks are tightening up on their offers, though. It’s very rare to get a no-fee 0% offer nowadays, and the balance transfer fee can make your “no-interest” loan relatively expensive. You also need to be sure you don’t use that card for any purchases, or, as others have noted, you’ll end up paying interest on that purchase amount until you’ve paid off the lower-interest balance (read the fine print). I’ve noticed that as soon as I transfer a balance to a card, that company starts sending me “access checks” and other offers to try to entice me to make purchases. And some companies will jack up the interest rate if you’re so much as a day late with a payment, so you have to be very diligent about paying on time. You can’t count on getting another offer before the first expires, either, so you have to be prepared to pay within the time period specified (or willing to pay interest on whatever balance you’ll have).

Maybe this is a dumb question, but how does she make investments with it? Like if I wanted to open a CD account with such a 0% card, could I do it? (usually they require you to use your checking account to fund such an investment, no?)

You make out one of those 0% checks to yourself and deposit it in your checking account, giving you (say) $5000 in your account and a $5000 credit-card debt. Then, I suppose, you could buy short-term T-Bills (they’re currently running just shy of 5%). If you make damn sure to pay off the $5000 debt (and you’re taking a risk the you won’t suffer a major illness or job loss in the next year) you could end up $250 richer.

Nothing to stop her from doing it. However, she does need some cash to make the minimum monthly payments.

As said, these can be legit if you are disciplined and read the fine print.

Many such offers come with “cash advance fees”, which are for all intents and purposes interest charged up front. However, some few don’t have these fees and few charge any fees on new purchases.

How do the banks make money off these? Several ways:

  1. You screw up, pay late and default. Some banks will give you a break for one late payment.
  2. You keep the balance longer than the year. With some banks you just go to a regular rate and that’s not so bad.
  3. “Cash advance fees”.
  4. Payments are applied to older balances first, so you get $10000 @0%, then charge $1000 @8%, and you’ll have to pay off every nickle of the $10000 before any is applied to the $1000.
  5. And even if you borrow $10000 with little or no fees, and pay them off, they are hoping you’ll like them so much you’ll stay on as a regular customer. This worked with me, who now charges some $1000-$2000/mo on one of those banks (US bank) who treated me well during the promo period. Sure, I pay off all my charges every month- which some of the Loanshark banks (Capital One) don’t like- but a CC company can make a nice constant flow of cash from your charges without ever getting a penny of interest from you.

NEVER, EVER use up all of your balance. Then it is very very easy to go “overlimit” with cascading charges & fees. Capital One relies on this. For example, if your limit was $10000, and they had a 3% fee for balance transfers and cash advances- then you went for $10000. You’ve just went *over limit * by $300, which incures a large fee, and defaults your interest back to 25% or whatever. And, yes, they’ll let you do that! Which will mean you need an immediate payment of like $500 just to get back so that your next payment isn’t both “late” and “over-limit”. :eek: