The irresistible 0% teaser rate offers from companies are common in advertising because they are an effective way to increase sales. They reel buyers in and entice you to spend more than you planned, because after all, “it’s free money.” Often these offers are encumbered with fine details and strings attached that can have you paying high rates of interest, instead of getting a bargain.
The CARD Act provides a range of consumer protections and addresses issues like capping interest rates and restricting fees to protect consumers from unfair practices. 0% promotions and deferred interest offers are not widely addressed in this legislation, leaving consumers to fend for themselves.
Here are the top things you should know about promotional offers.
- Not all offers 0% offers are truly 0%. Many products advertised as zero percent have deferred interest and not waived interest. A promotional rate, often 0% interest, is available for a short period, such as six to 18 months. Such deals can be costly in two ways: First, the rate is only offered if you meet a spending minimum. Second, if the full balance is not paid, interest is tacked on at the higher rate, from the purchase date, fully negating the promotion. Specialty retailers use deferred interest rate deals the most.
- You must qualify for the loan or line of credit. While this may differ among companies, having above 700 credit score may be required to Promotional offers, especially zero percent offers, are generally only available to top-tier clients.. Credit card companies may offer zero percent in waived interest on charges or balance transfers. The benefit to the credit card company is you become a loyal customer with a revolving balance immediately. Auto dealers use zero percent offers to move weak selling cars or dated models to make room for new inventory. According to an Edmonds 2015 survey, only 9% of auto loans represent zero percent incentives.
Zero percent may not be the best deal. Credit card promotions must be at least six months in length according to the CARD Act. They typically range from 6 months to two years. Fees and a high permanent interest rate may eliminate the benefits of a zero-percent promotional rate. Balance transfers only move debt around rather than paying off debt. Whatever balance exists at the end of the promotion, will be charged an ongoing higher rate. Comparing fees, ongoing charges and the permanent interest rate will determine if taking advantage of the promotion will provide a long term benefit.
- Vehicle interest rates have been low for a while, and qualified buyers can get low rates around 2% from credit unions and online banks. Obtaining financing for a vehicle purchase increases your flexibility and freedom to buy the car of your choice at the best price. Dealers often offer rebates or cash deals to entice you to buy today and depending on their zero percent promotion may result in forfeiting other incentives. Finding your own financing will give you more leverage with the dealer and could result in higher savings. Car financing is available at all credit levels, however, buying a car when your credit is poor, could result in 20 plus percent interest and high upfront fees.
- Check the fees involved Make sure the numbers work before you transfer funds. 0% offers on credit card balance transfers typically come with balance transfer fees which can range from 3% to 5%. Savings are limited to the length of time the zero percent offer is in effect minus any costs associated with the transfer. Moving $10,000 at 15% can save you around $200 a month in interest charges. A 12-month promotion may cost you up to $500 to move, but may pay for itself in reduced interest charges. How much you can get approved for will also factor into potential savings.
- Deferred interest deals are easier for consumers with marginal or troubled credit... Those with marginal credit may be able to be approved for financing at stores selling appliances, furniture, computer, home improvement goods and so forth. Retailers with dedicated credit cards are more generous with Companies selling high dollar items are dependent on financing and offer deals with few verifications. Others have deferred interest rather than a true zero percent offers. The key to success with deferred interest offers is only to purchase what can be paid off within the promotional period.
- Beware of fees in place of interest. One way companies prey on those with struggling credit records is to approve solely based on income. Fees, rather than interest, are charged each month or week, which can add up to a huge percentage of the cost of the item. For example, Pay Day lenders do not typically charge interest; instead, they charge fees each week a balance is outstanding, which when translated to an annual interest rate can top 300%. Rental centers and other companies that target those with poor credit may operate under the same premise.
- Pay attention to the promotional period. All promotional rates have time limits ranging from 6 months to 2 years. Very seldom are low promotional rates permanent like was seen a decade ago. How long the promotion runs will largely determine the value of the offer. The longer a great rate is available, the more likely you will be able to offset fees associated with the offer.
- Not all balances get the promotional rate. When taking advantage of promotions, don’t use the card for other purposes, so you can track interest savings and balance payoff requirements easily. Adding new purchases that do not qualify for the promotional rate could result in the inefficient application of payments. If all payments go toward the highest interest rate balances, the promotion might not get paid off by the end of the period. Splitting payments among all balances may have you paying more in interest.
Promotional interest can save significant amounts of money when judiciously used. Not all programs are the same and reading the fine print to understand the terms is essential for getting the most out of the promotional offer.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here contact-us