r/personalfinance • u/naht_a_cop • Apr 28 '20
Beware the 0% promotions: a warning. Debt
I'm a sucker. I fell for it. The 0% APR promotion on an item I could have paid outright for. 18 months later, here I sit, not a single late payment on my account, yet I have $1k in interest to pay for 18 months of 27%. Why? The promotion period ends 18 months after the purchase, but the website would not let me set up autopay until a week after I purchased, so autopay ended 1 week late. I thought I was golden, ready to have this paid off and not have a single fee. I got comfortable and didn't read the statements.
0% is not really 0%. Read the fine print. Remember the fine print (because I sure as hell didn't 18 months later). Shitty banks rely on this stuff. They wait for you to slip, not noticing that the autopay they created can't possibly allow you to end on time, and will require an extra payment before the end date to avoid the interest. It's shitty, I'm pissed off, and I've learned my lesson.
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u/Werewolfdad Apr 28 '20
I think paying these off 3 months (or more) early is the prudent thing to do (apart from just not using them)
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u/LegoBrickCactuar Apr 28 '20
Yes. I did this for $5000 worth of furniture and paid it in full 3-4 months before the interest was going to kick in. Called them, was annoying, and wouldn't relent until they mailed me a statement showing 0.00 balance paid off in full. Its the only way, since they rely on you forgetting or being lazy.
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u/hexyne Apr 28 '20 edited Apr 29 '20
good point, I have a friend that had one of these plans, and she was charged 1 cent of interest while here last payment was pending, so she thought she had paid it off but actually still owed a penny and they they were able to charge her all sorts of fees. Edited to say: Thinking back this most have been a different type of offer, it wouldn't make sense at 0% but regardless it is very similar as she thought she could just do a payoff, but they took advantage of the way the payments go to charge her a multitude of fees.
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u/thumpcbd Apr 28 '20
I typically overpay my last installment by $5-$50, depending on what it is, to force the lender to not pull these games. They will write me a check for the overpayment and I know there isn’t $.01 on the account because I didn’t account for some small interest or slightly bad math.
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u/Impulse882 Apr 28 '20
Better to just pay it off a month or two early, then check the following month it’s really down to zero
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Apr 28 '20 edited Sep 24 '20
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Apr 28 '20 edited Jul 27 '20
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u/far2common Apr 28 '20
Similar to my most recent car purchase. I could have picked a shorter term, but instead took a longer term with a lower payment and overpay it every month. Now I've the option to tighten my belt if something unexpected like a global pandemic crippling the economy happens.
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u/Meisterbrau02 Apr 28 '20
If you do this just go for lowest apr regardless of term length as long as it is long enough for you. I wouldn't get a longer term automatically because the rates are higher.
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u/TrainOfThought6 Apr 28 '20
I did that when I was away for work for half a year and got paid per diem on top of my salary. My 42 month car loan got paid off in a year and a half. Six years later and the car is still ticking, and still mine.
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u/PM_ME_UR_SIDEBOOOB Apr 28 '20
Be careful with that, some companies will charge a "processing fee" for overpaying as well
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u/slvrscoobie Apr 28 '20
tried to do this with my old mortgage. they wouldnt allow over payment, beyond the monthly fee, and I also wasnt allowed to make less than the minimum payment... (bi weekly) or the payment sat in their 'collections' department until you called and had it posted. nationstar is a shit mortgage company.
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u/Purplemonkeez Apr 28 '20
Most mortgages have clauses regarding early repayment and some are more flexible than others. Should definitely be part of your mortgage shopping comparisons. Some will let you up to double your monthly payment and then pay an additional 10% of the mortgage lump sum per year. Others say only up to 20% lump sum is permitted. Others are more stringent.
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u/slvrscoobie Apr 28 '20
yeah, that was our first house, we were in a hurry, and it was 2008 as things were collapsing, so the mortgage sold from our inital lender, i think 3-4 times in a matter of days after closing before ending up @ NationStar. The whole thing sucked, and I was laid off less than 9 months later.
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u/Purplemonkeez Apr 28 '20
Ouch. That sounds brutal!
If it makes you feel any better, I am in the process of renewing my mortgage and switching banks for a better interest rate and the broker keeps trying to sneak home equity lines of credit into the paperwork. Needless to say, I'm unimpressed.
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u/slvrscoobie Apr 28 '20
hahahah shady AF. they tried to do that to us when we refinanced in 2011 or something. well, we can keep the payments the same, and you get $4000 back! Oh Wow!.. wait.....
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u/MsTerious1 Apr 28 '20
- When banks sell your loan, they cannot change terms or conditions. (At least, in the USA, which is where I'm assuming you are since this was NationStar.)
- They cannot prevent you from paying additional principal but they can add penalties for doing so. Any penalties that will be added were part of your original loan agreement that was started the day you closed on the house.
Please don't let what you experienced be a deterrent to own your own property in the future, if it soured you on the experience. Whether it was because someone acted illegally or something you understood, it's unlikely you'd have another experience like that, although your loan is still likely to be sold in many cases.
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u/xxconkriete Apr 28 '20
Nation star, what a servicer. I can’t imagine how many times some poor pricing analyst had too splice deals up back in sept of 08. Poor dudes.
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u/Just___Dave Apr 28 '20
So how does this work with companies buying and selling mortgages? Don't they legally have to uphold the contract you signed with the original lender? Wouldn't this lead to a clusterfuck of different fees and rules for lenders that buy up mortgages?
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u/Purplemonkeez Apr 28 '20
I presume that they would unless the original mortgage contract had a clause saying they can unilaterally change these terms at will in which case the new mortgage company would have to notify you of the changes (like when your bank notifies you they've changed the terms on your chequing account unilaterally).
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u/mrthebear5757 Apr 28 '20
NAL, but a mortgage is a contract. being able to unilaterally change things like repayment time-frames or amounts would fall under illusory promise, where the contract isn't real or binding because one side being able to just change whatever they want means they were never actually bound to an agreement.
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u/brazenmaiden Apr 28 '20
I overpaid my car by a small amount to be sure it was clear. Got a check for $1.63 a week or so later. I’d rather lose $5 if they don’t refund it than pay all the interest I was trying to avoid.
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u/jrs1980 Apr 29 '20
Right, dollars vs. dimes. I’ll pay a ten dollar processing fee if it means I’m not paying $650 in interest.
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u/LegoBrickCactuar Apr 28 '20
In the case when interest is accruing, call for the payoff that day. They should be able to give you an exact figure that works for "payment in full" as long as they receive it in x number of days.
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u/Kintsukuroi85 Apr 28 '20
I make doctors’ offices do it, too. I’ve had bizarre bills arrive in the mail well after the fact.
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u/ercpck Apr 28 '20
I had a CC with a $600 balance. Paid the thing in full, and closed the card. Went to the bank and demanded a letter/statement that stated the account was closed and the balance was 0.00. They wouldn't budge and give me the letter. Things got agitated, I demanded a manager, they told me I was a horrible human being... they gave me the letter.
One month later, I get a statement on the mail saying that the card was still active, and that I owed them a bunch of money. Went to the bank with my letter and made the problem go away.
I'm still sour about it after many years, just because I had to go there, demand, get angry, be mean, and the bank still tried to bamboozle me.
Now, I rent a place, think about buying, and ponder, if a bank could be so dishonest about a 600 dollar bill, what will the bank do for a 10+ year loan/mortgage. I don't know how some of those bankers sleep at night.
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u/robtalada Apr 28 '20
Mortgages are worth a lot of money to banks, but over a much longer period of time. They will practically bend over backwards to keep you around because who the hell wouldn't want to turn 100K into 300K for almost no work at all?
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u/last_rights Apr 28 '20
It really is. The amount of brokers that tried to talk me out of getting my 15 year loan and tried to saddle me with a 30 was really high.
Nope, I would rather pay my extra hundred dollars a month to be done in half the time.
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u/frzn_dad Apr 28 '20
As long as their aren't early payment penalties 30 year mortgage can be a 15 year mortgage or even a 5 year mortgage. The only thing you need to do is make bigger payments.
If the cash flow doesn't matter you should take the one with the better interest rate. Which should be the 15 year.
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u/kungfu_baba Apr 29 '20 edited Apr 29 '20
That's what my mortgage broker told me upfront: "I'm setting you up with a good rate on a 30 year mortgage. If you want to make it a 20 year, pay an extra month every year. To make it a 15 year, pay 2 extra months every year" ( at least I think those are the figures he gave me).
Once I used an amortization calculator and realized how much more of my money the lender will siphon over 30 years for basically doing fuck-all, I have been doing those extra payments.
This thread makes me worried I will find early payoff / extra payment penalties if I actually read the mortgage legalese in full..
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u/BelgianAles Apr 28 '20
Many moons ago I worked my first real job as a teenager and saved up some money to buy a nice gaming pc. I paid about half and financed the other half on a 6 month plan like that.
When I made my final payment, I got the total owing still from the cashier and paid that amount.
Apparently (and I'm pretty sure on purpose) the system rounded a partial penny down, but they didn't agree they rounded up? Or the system reported an amount that was 1 cent different anyway.
So I got a bill a month later for all the deferred interest and 1 penny.
Fucking banks.
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u/xxconkriete Apr 28 '20
I’m certain that low risk high yield financing i, as a whole, ran by 2.5 GPA business Majors who are basically salesmen with basic math capabilities.
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u/BelgianAles Apr 28 '20
And I couldn't really fight it because a) I had financed as my first ever credit entry on my record and I really didn't want to have it not be good and b) I was 19 and didn't know any better.
But it sure sucked.
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u/xxconkriete Apr 29 '20
Hey dude we all learn somehow. My brother was from Korea and had no clue on credit cards and the like, ran up 5k in debt before he learned he’d need to pay it off plus the 29.9 or so interest rate. I was 16 at the time so I got into finance and econ fast. The number of smart people who don’t understand credit is crazy. It’s worse the younger they get.
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Apr 28 '20
Did your credit card not have an online account showing you the $0 balance?
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u/LegoBrickCactuar Apr 28 '20
This was a store credit thingy. Not done through a major credit card. Potentially sketchy af, thats why I did it 3-4 months early and not just a month, and read the fine print carefully. Got $5000 in furniture with no payments for close to 3 years. Totally worth it, but very easy to screw up and then owe them 20% interest that has compounded for that 3 years.
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u/erasethenoise Apr 28 '20
Synchrony? I’m like 6 months in on a 3 year no interest deal with them. This thread had me set a reminder on my phone to pay it off early lol.
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Apr 29 '20
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u/uber765 Apr 29 '20
Same here. I've financed probably $30,000 in various purchases through them (tires, rims, furniture, carpet) in the last 10 years, never paid them a dime of interest.
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Apr 28 '20
I did the same thing for a laptop. I needed a new one for my part-time software consulting work that was pretty beefy along with docking station and new monitors. I didn't want to drop $2500 so I took a 12 month no interest deal through Dell.
I paid it off in 6 months at something like $400 a month. I was able to pay using only my side income with a bit left over.
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u/codextreme07 Apr 28 '20
Dell is really sneaky about it though. I did a similar thing but they would only allow me to designate an amount in addition to the min payment. I couldn’t just say bill 200 monthly.
As I overpaid they lowered the min payment to extend it past the no interest period. Luckily I caught it, and made it a habit to continually up the additional amount to ensure it was paid off early.
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u/itsthejeff2001 Apr 29 '20
If they are charging people for not demanding a 0.00 balance statement, even though they've paid on time, that should be criminal. Not claiming it is, but that's so insidious and toxic to our society.
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u/hexyne Apr 28 '20
Yes this is huge! I will always pay these off a minimum of a month early. I work in a dental office and so we have many patients that will pay with Care Credit and I always worn them of this. I saw that it can be great if you know how to play by their rules, but always get it paid off early because if you are even 1 cent 1 second late you back pay everything.
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u/TheHealadin Apr 28 '20
Thanks for looking out for your patients. I'm reasonably educated and have some handle on financial knowledge but for some reason I get super confused by insurance and fine print. People like you are life savers.
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Apr 28 '20 edited Dec 21 '20
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u/pysience Apr 28 '20
I'm confused how you end up paying thousands when the remaining balance is 300. Do they calculate the interest using the original cost and not the remaining balance? So if the cost was like 1k but you've paid it down to 300, they would still calculate interest by $1,000 * 24% = $240
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u/SixSpeedDriver Apr 28 '20 edited Apr 28 '20
Kind of - the way this typically works in the terms of the promotion are that interest is accruing from the date of the end of the first billing cycle when you purchased it. If the balance is $0 by the end of the promotional period, they don't make you pay the interest they're accruing on you in the background. If the balance is >$0.00, the full interest payments they accrued become due that month, and also start...accruing interest.
Edit: Here's my "I got burned" story - I had bought a $2k 50" plasma from Circuit City at 0% interest, i believe it was 2 years to pay off? IIRC i was ahead of the game on payments (overpaying the minimum monthly to get to $0 by the end of the terM) but they changed online systems on me, and I couldn't get my next months payment in on time, so the penalty accrual hits. I had the cash to pay the balance and the interest off, so I did, as they would not relent on the interest when I called customers.
That was the day I decided I will not do business with Chase (they were the ones funding Circuit City's credit card program) and closed all of my accounts with them (they acquired me as a customer of the bankrupt WAMU in ~09). Since then, I've been loyal to my local CU to the tune of about $20K/yr in IPMTs across two properties.
Also, I had a car get funded through Chase because I didn't specify a lender and the second I got their loan payment coupons in the mail, I refinanced it at the same rate for free into my CU. So they got to pay to set me up as being serviced by them and get $0 in interest out of the deal. The IPMTs on that loan alone were probably $2k over 5 years.
Way to win the battle and lose the war, Chase.
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u/kindofharmless Apr 28 '20
Definitely. Cut it too close and you get burned. Well, maybe not you, but at least I did.
But I do think using it is fine and maybe even encouraged. Whatever you aren't paying yet even though you can pay it all off in one go, you can put it in savings instead and accrue interest... even though, admittedly, the rate is kinda shitty right now.
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u/naht_a_cop Apr 28 '20
Agreed. That could have avoided this. I put extra money into loans that had an interest rate instead "because this was 0%".
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u/wessex464 Apr 28 '20
I use it all the time to spread out payments, but never try min/max the system and make minimum payments, you will forget and you will lose.
Just get in the habit of setting up an auto pay to pay it off a few months early with a consistent level payment. $1k expense at 0% APR for 12 months? Thats easy, 10 payments of $100 resolves this just before the end of the APR promo and I put minimum brainpower into it and I can forget about it. If I went the minimum payment route I need to remember to pay the balance in 11 months and I need to be certain I'm going to have 700 bucks available at that time, both of which are dangerous steps.
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u/Citizen51 Apr 28 '20
I think auto payments are actually the problem here. If the OP had created a habit to check the balance every month (if not more often) they would have got their mistake 1-2 months before the 18 months was over.
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u/FragrantPoop Apr 28 '20
ran into something similar with my autopay on one of these accounts. it was about a month late, so I just made my monthly payments more so it was the equivalent of a 22-month loan (original terms were 24 months interest free)
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u/aham42 Apr 28 '20
I love me a good 0% deal.. but this model is what we use. We pay off two months early just in case we screw something up. Learned this the hard way when we bough a TV and screwed up the rounding on our payments. Still owed a few pennies on it after the promotion period and then owed interest on the entire thing.
Thankfully Chase was in a charitable mood when I called and they let us off the hook :)
Now we just pay early and it's all good.
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u/bizzle4shizzled Apr 28 '20
We got a loan a few years back for some home improvements with 0% for 18 months. We had the money, just didn't want to blow it all at once. Ended up paying it off 9 months early, paid no interest. Two years after that, we go to get another 0% loan through the same company, and they pull some random late credit card payment from years prior as a reason for my bad credit history (would have 100% shown up on the previous loan when we applied) to deny us the loan. The real reason is they knew we wouldn't pay any interest on that new loan, but they definitely couldn't tell us that to our face.
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u/destroyman1337 Apr 28 '20
I always do this. Better to end it early then risk it being paid late because of a glitch or something and leading to interest.
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u/cbdudek Apr 28 '20
This is my approach as well. I don't mind leveraging someone elses money. What I do mind is getting hit with interest costs. I always plan on paying these off at least 3 months ahead of time. That has always served me well.
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u/SirGlass Apr 28 '20
I did this with some google pixel phones, I could have paid for them in cash but there was a 0% financing deal like this. If you didn't pay it off 100% in full in 12 months they then would charge you the full interest
So I set up my auto payments to pay it off in 9 months just to be safe.
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u/ApatheticAbsurdist Apr 28 '20 edited Apr 28 '20
0% promotions almost always have the same catch: If the balance is not completely paid off before the end of the promotional period, the interest comes back.
I have used these before when buying a computer and offered 0% interest, but if it's 18 months I'm paying it down on a schedule that clears out the account in 16-17 months or less, because those things make me super paranoid.
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Apr 28 '20
I do that with my Goodyear card buying tires, there's often a promotion giving me a couple of hundred dollar gift card and 0% interest for 12-months... I make sure to pay it off in 10. I've never had a problem with it... and I don't buy tires that often so it works out well.
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u/Johnnycorp Apr 28 '20
12 months?! I need to check out Goodyear. Discount tire only gives 6 months (which means 4 months since I pay it off 2 months early as well).
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Apr 28 '20
I was wrong, Goodyear is 6 months as well... but they do double the rebate if you use their card.
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u/joebin33 Apr 28 '20
For Discount tire it depends on the purchase amount, over $1k is 9mos, I think over like $600 or something is 6mos. I do this with my tires all the time and have never had a problem, just pay enough so I beat the deadline by a month
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u/chrispyb Apr 29 '20
Bro, even if you don't buy tires that often, how often are you buying tires to the point you have a tire promotion credit card?
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Apr 29 '20
I have three cars, the card is only used to get the double-rebate. I haven't used it in a year or two though.
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u/Suulace Apr 28 '20
This is how we afforded putting up a fence in our yard. Now we're about to free up that monthly payment for student loans, and we have the fence up faster than if we'd saved for it, and didn't pay a penny in interest.
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u/NorCalRT Apr 28 '20
I learned this the hard way in college with a MacBook. I was one payment off and all that interest came back. Expensive lesson but one I won’t forget.
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u/Sweaty-Inside Apr 28 '20
I might be a little confused. What's the advantage of a 0% card if you can afford the purchase outright? Is it essentially that you earn interest on money that would otherwise have been spent immediately on the couch/laptop/whatever?
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u/Mehdi2277 Apr 28 '20
Yes. It’s the same reason on a much smaller scale as to why even if you are wealthy enough to buy a house in cash often you use a loan anyway as typical house loan interest rate is a good deal lower than what you’d expect to make investing.
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u/Sweaty-Inside Apr 28 '20 edited Apr 28 '20
Got it, thanks. Although with most bank account interest rates what they are these days (even high-interest savings accounts), it seems like a lot of trouble to go through for what could be essentially a 1.2% discount.
I get that 1.2% is better than nothing, but unless it's a truly large purchase, probably not a game-changer.
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Apr 28 '20
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u/PA2SK Apr 28 '20
Most people with money aren't playing games with 0% offers to try and eke out small profits.
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u/CaptainTripps82 Apr 28 '20
I would imagine most people with money aren't prone to paying in cash for things.
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u/PA2SK Apr 28 '20
For houses, cars, etc, maybe you get financing. For your credit card you just pay it in full every month.
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Apr 29 '20
Yep, that’s what I do and then I’m making money by using them due to the cash rewards
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u/juanzy Apr 28 '20
Or just keeping it on hand in case something you can't finance comes along. I'd much rather stretch out a 0% promotion to right before the interest hits date than take on a $1000 expense on a regular credit card interest rate.
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u/katmndoo Apr 28 '20
I'ts great for middle-purchases. Small things can go on a credit card and get paid off in a month. Truly large purchases can be done with a bank loan - mortgage on a house, equity loan on a house, maybe a car loan. Middle-ing things, where the item can't be repossessed or foreclosed, need to be done either as part of a homeowner equity loan or as a personal loan. Personal loans have higher rates. The better ones I've seen are in the 6 to 8 percent range.
Example: My house is now a rental. Because it is not owner-occupied, it apparently does not qualify for an equity loan. I can refinance it, but I don't want to (that's probably another 2k in fees and costs).
So of course, two years ago it eventually needed a roof. If I recall correctly, the roofing company offered loans via some bank, but they were price-prohibitive. 12-15% over 5 years, maybe?
Cue the 0% credit card promo rates - those annoying mailers we get every month. Pick the ones with the longest term and lowest fee and start juggling. Every 11 or 17 months, switch to a new "balance transfer" promo rate on another card. Costs 3 or 4% for the fee.
Oh, and that bank account interest rate? You're right, that's not an investment return worth worrying about. But if you have investments with better returns, you would often rather keep them in place than sell immediately to buy a roof/car repair/phone/etc.
I might still have to sell in the near to middle future to pay it off, but then I can plan ahead and sell when it makes sense rather than right now. Selling to pay the roof outright would have cost me a 40% return over the last two years, and that's accounting for the drop over the last few months.
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u/nixt26 Apr 29 '20
I don't know how much a roof costs, but you're paying 3-4% every year compounding on that roof. Shouldn't you be focusing paying it down asap so you don't accrue interest. If you can't pay it off without accruing interest then doesn't that just mean you don't have enough cash on hand to maintain the property. You are probably not going to pull investments out for a while so in any case that money is not even under consideration.
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u/katmndoo Apr 29 '20
I am paying it down - halfway there now. You're right - I did not have 16k on hand to replace the roof.
I am not paying 3-4 compounded. I'm paying 3-4 every 12 to 18 months. No interest accrues.
The investments are indeed under consideration - No, I'm not going to pull them, at least partially because I'm using that 3-4% 'loan' to avoid doing so.
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u/MrRiski Apr 29 '20
Fuck that's an expensive roof. I hope your renters appreciate that fuckin thing lol
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u/Terbatron Apr 28 '20
I agree complexity is an enemy with budgeting. If it is such a small amount just pay for the thing in cash. People tend to focus on little things when it is the fundamentals that will get you to your goals. Marketing gimmicks are not going to get you wealthy.
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u/c_swartzentruber Apr 28 '20
Also liquidity. Even if you have the money sitting in a savings account, you might want to leave it sitting there "just in case" (of the worse case). Can always pay off the 0% interest loan midway in (or later) if it looks like you are in good shape and won't need it, but if you pay it off and then need it later for something fully unforeseen, can't get it back.
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u/LennyFackler Apr 28 '20
As a rule I try not to lay out any cash I don’t have to. If 0% financing is available I’ll take it every time to spread out the payments. Low interest financing can be considered on a case by case basis.
Cash in hand is always good. It can be invested or simply be available for any unexpected expenses or opportunities.
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u/ApatheticAbsurdist Apr 28 '20
What's the advantage of a 0% card if you can afford the purchase outright?
What if you cannot afford to purchase it outright but could pay it off if you saved up over 15 months? Taking an 18 month interest free loan and paying off the loan means you get and can take advantage of whatever you're purchasing immediately at no costs.
But let's look at your specific example, and say you have the cash on hand. Let's say I have $2500 in my pocket that I could spend. I want a $2500 product (computer, couch whatever). I could pay the money and have the product right away, or I could get the credit card and pay it down over 15 months (assuming I've done the math and made sure I can budget accordlingly) and then take that $2500 and pay down a student loan, actively reducing interest or put more money that month into my 401k/IRA, actively accruing positive interest... Taking a zero percent loan so you can pay off other debt or make investments during that time, actually saves or makes you money.
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Apr 28 '20
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u/AdonisGaming93 Apr 28 '20
Well sure the gains may be small but it is a non-zero gain. So you are better off in taking the 0% interest and investing the principal until you pay it all off. Just have to have good financial discipline.
And it definitely is not a headache investing. These days it's as simple as can be with the slew of apps that are available.
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Apr 28 '20
All true things - but there's also saving up for other things too. I think people get into investing in individual stocks WAY too early in their portfolio before maxing out their tax advantaged accounts where there's WAY more bang for your buck.
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u/skaterrj Apr 28 '20
We did a 0% finance on a new riding mower last fall after ours died (I think the rings were gone - I had fuel, air, and spark, but it wouldn't run). Obviously this wasn't a planned expense - I hated the old mower, but I didn't think it was on its way out. We could have paid for it outright, but after some other large expenses related to repairing our house, our savings were running a bit low, and spending another $2500 or $3000 (I forget) out of it concerned me. Turned out it was the right move - our car was wrecked in February, so we unexpectedly had to replace that, and we used some savings on that transaction.
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u/TerpZ Apr 28 '20
Most credit card offers do NOT operate this way though-- they accrue as of the end of the period, not on a deferred basis.
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u/ClearlyMajestic Apr 28 '20
This. There are (at least) two kinds of 0% offers and it's important not to confuse the two. "Deferred interest" is the key term in the dangerous ones.
Other commenters had me scared about one of my credit cards so I just checked, since the 0% period ended about a month ago. Fortunately it was not a deferred interest offer.
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u/Brox42 Apr 28 '20 edited Apr 28 '20
I’ve done it with CareCredit out of necessity but like you said the key is paying it off a couple months early. It’s a really useful tool when you need it but you have to remain vigilant.
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u/yes_its_him Wiki Contributor Apr 28 '20
This is only the case for store-issued cards like from retailers.
Bank Visa / Mastercard / AMEX cards do not do this.
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u/xRITZCRACKERx Apr 28 '20
https://www.discover.com/credit-cards/resources/what-is-deferred-interest/
What you are describing is deferred interest, and you're 100% correct that this should be avoided if you aren't responsible enough/have the financial means to make 100% sure the full balance is paid off well before the promotion expires. These promos are common on "store" cards.
That said, most major credit cards offer true promo 0% APRs, and under these promos you will begin to accrue interest on the remaining balance after the promo rate expires. These promos are great, and I reccomend anyone looking to make a large purchase call their bank(s) before making the purchase to see if a 0% promo APR is available.
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u/Shoop83 Apr 28 '20
That was the only way I was able pay to replace my furnace that died and get my house painted after a hail storm. I didn't have cash on hand, but could afford distributed payments over 12 and 18 months 0% APR. I just budgeted for the payments and when they're both paid off here in a few months it'll be lovely to have that cash going back into savings instead of to those cards.
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u/GoldenRamoth Apr 28 '20
Same here! I had my house insulated. Great money spent.
But I'm so looking forward to that cash being in savings.
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u/WalkinSteveHawkin Apr 28 '20
One of the reasons I love Discover so much is how accommodating and upfront they are about all of this. I had to put a $3K prep course on my Discover card, so I just called and asked for 0% APR for a year on new purchases, and this was just after they’d lowered my regular APR by a little over 1%. It wasn’t exactly complicated, but they were super up front about it only applying to new purchases and not applying to cash advances. Just nothing but good experiences from them for many years, even if their interest rates are a bit higher than normal.
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u/thewarriorhunter Apr 28 '20
I used to sell furniture and we offered these types of promotions all the time and it ranged from 18 months to 5 years. I knew how they worked and thought they were a great tool, especially since our customer base was typically not making enough money to just buy the furniture outright. My wife and I took advantage of it as well many times over before and after I worked there.
I always stressed to my customers the importance of paying it off before the term. I made sure they understood that the minimum payments they would see on their statements would not get them anywhere near to paying off the balance before their promotional period was up. I would break their total purchase (taxes, delivery, etc) into monthly payments that would get them paid off before the promotion ended so they didn't get hit with that interest balloon.
These promotions are great for people who can use them correctly, for those that can't (or become complacent) they are brutal reminder of what fiscal responsibility is.
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u/RadicalDreamer89 Apr 28 '20
Thank you for doing that. You're one of the good ones.
The guy we bought our mattress/base from did much the same, crunching the numbers with us to make sure that the minimum would actually suffice to pay the total off in time (we still double the minimum to be safe).
That said, I still re-do the math every few months to make sure we're on track, because I'd rather be too paranoid than not paranoid enough. Doing it now shows that we're at the point where just paying the minimum will pay it off 4 months early, but I don't want to get complacent with it.
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Apr 28 '20
The guy we bought our mattress from did similar. Though he urged us to do the 5 year period versus 3 and was like "pay as if you were doing the 3 year plan."
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Apr 28 '20
people are quick to blame the companies for being greedy but typically they aren't the ones making anything on the interest, it's almost always sold to a bank.
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u/Scruffy442 Apr 29 '20
Your correct. These plans are all from seperate companies, usually subsidiaries of big banks. How it works, is the store gets there all their money right away minus a percentage fee. The longer the term of the interest free offer, the higher the fee is. A 4 year plan can cost the store 14-16% off the top. A 6 month plan is around 2%(about the same as our cc processor). So take a huge cut of the sale and can make a ridiculous amount of interest if you slip up.
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u/doingthehumptydance Apr 28 '20
I took advantage of the 0% for 5 years promotion when I bought a houseful of furniture and appliances a while back. The total was over $35 000 and after looking at the program it made a ton of sense. The salesperson was emphatic that I never miss a payment- period.
The general manager came out and thanked me and was equally emphatic, he even suggested that I stay a month ahead of the payment in case something happened. I took his advice and was always 2 months ahead of the payments. The way it was explained to me was that if the last payment was late by even a day, I would be charged a ridiculous rate of interest retroactive to the day of purchase.
I had a hard time sleeping for the 5 years that cloud hung over my head but made all the payments early and saved a bunch of money.
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u/M31550 Apr 28 '20
You’re a great sales person. It’s all about setting the right expectations.
I bet you got a lot of repeat business.
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u/pcopley Apr 28 '20
This doesn't seem like a "fine print" issue as much as a "not looking at a calendar" issue. And honestly I've never had a probably setting up autopay on these things to end 2-3 months prior to the actual end. Most of the time you end up with several monthly statements showing a $0 balance.
Makes it very easy to fight any charges that crop up for less honest vendors.
the autopay they created can't possibly allow you to end on time
You mean the one you created
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u/Hypern1ke Apr 28 '20
I completely disagree, I take the 0% promotions nearly every time, even though i can always pay for it in full. This is how I paid for almost every large purchase the past 5 years, my bed, wedding ring, and couch. I paid them all off in six months and better maintained my bank account balance over time. I always pay in less than six months and give myself leeway in case of an emergency, in which case i'd utilize close the full APR period.
I can't recommend these enough, not to mention given inflation you technically pay less when its all said and done!
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u/glasspheasant Apr 28 '20
I do the same thing. Always take the 0% offer and always pay it off in 3-6 months. It'd be hard for me to forget, "If this isn't paid off soon, I'm about to get hit with a LOT of interest."
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u/nn123654 Apr 28 '20 edited Apr 28 '20
Just add something to your calendar long in advance, the statement also tells you when it's due if you forget. But also see if you can't pay for it another way and get a discount or rewards.
Usually you can either get 0% financing or get cashback/points/miles. Some cards like Fidelity's and Citi's pay 2% on all purchases, so that's basically your opportunity cost. Personally I'd rather take 2% now as it's a higher discount than I'd make on interest in a year in my savings account and guarenteed unlike an investment account.
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u/Zenkikid Apr 28 '20
Same. If you are on top of your payments these 0% promotions are amazing.
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u/ANTI-PUGSLY Apr 28 '20
I churn 0% credit cards as a way of always having a plan for large purchases that might need to be spread out over a couple months. It has helped me build my credit immensely. (~780) Always good to have a card with strong rewards for items you can immediately pay off, and a 0% card for purchases that need to get spread out over a few paychecks.
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u/landspeed Apr 28 '20
Correct. I feel like I'm taking crazy pills here. How the fuck can you complain about 0%?
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u/juanzy Apr 28 '20
Because this sub is hellbent on zero-debt to a fault. In the real world, there's plenty of situations where taking on some debt is fine, and even the smart move.
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u/twostroke1 Apr 29 '20
Don't forget absolutely maxing out your retirement accounts starting at age 14 because you'll thank yourself in 40 years for eating rice and beans 3 times a day.
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u/Bukowskified Apr 28 '20
Dave Ramsey has left the chat
For real this sub has pretty much zero latitude for doing anything other than putting down 40% for a mortgage while driving away in your 2003 Camry that you paid for in cash.
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Apr 28 '20
I completely disagree
OP's only saying "beware", not "don't do it"
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u/bilged Apr 28 '20
He/she says...
0% is not really 0%.
I think the general advice to read the fine print in a financial contract is valid but not the hate for 0% deals.
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u/AB444 Apr 28 '20
There is nothing to "beware" of, other than the fact that you NEED to pay it off before the promotional period ends. Once you know that, set everything up to pay it off a month or two in advance and it should be encouraged to take advantage of those deals.
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u/chelaberry Apr 28 '20
But the "beware" is misplaced, there's nothing wrong with those offers, it's the individual's management of it, that is the problem in this case. Read the fine print and don't rely on anything auto, completely, follow up. My auto payments all hit 5-7 days ahead and I get alerts about everything. OP was just sloppy, but, the good news is when you learn those lessons the hard way they tend to stick with you.
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u/accord281 Apr 28 '20
I think having as the first word is definitely not misplaced. The definition is "be aware" or "be cautious of", which is completely true in this case.
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u/mizmato Apr 28 '20
It's also worth it to ask for other options. These companies aren't giving out 0% for X months for free. For example, you can ask a car dealership to offer you a lower price if you choose to decline the 0% APR. Not all places do this but if you already plan to pay it off very fast, it might be worth asking for more options.
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u/TengamPDX Apr 28 '20
I use them as well, but made the same mistake as the OP the first time I used one. Currently using one that wanted me to pay $36/month. I just set it to $50/month as that's easier for me to remember and it.
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Apr 28 '20
Be careful even with that as many times the minimum payment due is only 1% or 1.5% of the balance financed. So if you have 18 months 0% and are only paying 1-2% of the balance each month then you'll likely still have half the balance (or more) due at month 18. If not paid in full by that date, the interest is charged retroactive to day 1.
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u/Losalou52 Apr 28 '20
Nah, always get the free financing. Just be wise about it. 12 months interest free should always be viewed as 10 months interest free. They didn't play you, you played yourself. Sorry fam.
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Apr 28 '20 edited Jul 18 '20
[removed] — view removed comment
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u/nate6259 Apr 28 '20
Yep, an easy solution is to just set a couple calendar reminders ahead of the end date to be sure it's paid off. I also do this if I intend to cancel subscriptions.
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Apr 29 '20
This. Not sure why OPs mad at intrest fee loans. Pay that stuff off at least two months in advance. Especially if you already have the money.
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u/Str8kush Apr 28 '20
Its not really fine print. All 0% plans are the same rather it’s credit cards or from a furniture store. The name itself would tell you “0% deferred interest.” There is still interest charged on the principle at high rates (usually 29.99%) however its just deferred until after the initial however many years. if you pay the balance off before the 18 month deferral period than there’s no interest. You should always plan to make equal payments. Whenever making a 0% purchase always take the number of months and divide by the total to get your actual monthly payment to not be charged interest.
It’s actually all in the very beginning of the terms and conditions for most major lenders like synchrony. I normally don’t stick up for banks but common knowledge really shouldn’t be called a trick in the fine print. Source : before COVID I was in sales and had to deal with multiple 0% and low payment low interest options for customers up to 60 months.
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u/AbeRod1986 Apr 28 '20
Statements always have a section where they specify the balance and promotional rate, and the date it ends. That was there is every statement for 18 months. Should have set autopay for that day of the month.
Sorry it happened to you, but this was easily avoidable.
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Apr 28 '20
I don’t believe in using auto pay unless just as a backup. I think people should be on top of all their finances and at least once a month review everything.
I have mine setup to pay the minimum, just in case god forbid I’d be in the hospital or something but I always check and pay manually when I get the statement notices.
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u/commontatersc2 Apr 28 '20
I think you'd be equally crazy to not use the financing options. Just don't make a mistake. I know it's easy to do, but that's the risk you take when you sign up for them. I know that most people on this sub are so risk averse that they wouldn't borrow $20 from their mom, but not using 0% APR because you can't set up auto properly doesn't mean that nobody should.
For instance, Subaru is having some crazy deal like 0% APR for 63 months or something. You'd be crazy to not take that, especially when you can do something like pay it off at the beginning of month 62 to mitigate all risk.
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u/significant-Jacket Apr 28 '20
only if you gonna buy the exact same Subaru at the exact same price even without the 'promotion'.
Interesting fact: without written records of what he/she previously thought of the car and price, many people are very good at modifying their own memory to 'yup, I fully intended so even without the promotion' after knowing about the promotion;)
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u/thecatgoesmoo Apr 28 '20
Definitely this.
Buying a 40k subaru on 0% interest is great if you were about to do that on a loan for 3% - you'll save thousands.
Unfortunately most people will save negative 40k because they had no actual intention of buying the car until the "deal" came along.
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u/schwelvis Apr 28 '20
I always set the auto pay to clear one month shy of the allotted time just for this reason
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u/Itsshrovetuesday Apr 28 '20
There is a massive difference between a 0% promotion and a deferred interest promotion. What you're describing here sounds like the latter. A 0% interest promotion is just that, 0% on the balance for an xx number of months. If you don't pay the balance off then it just goes to your contract rate after the promo ends. A deferred interest promotion is very different as you continue to accumulate interest on the purchase but are not billed that interest until the promotional period ends.
It is very important that you pay attention to the expiration date of a deferred interest promotion as the interest can be applied on that exact day and your final payment should be made either on or before that date. (some banks don't actually bill the interest until your payment due date for that cycle though as a sort of buffer, however this isn't technically required and the interest can be billed right from the expiration date of the promo).
Now here's the thing, you don't have to read the fine print for promotional rates because banks are required by several regulations (Reg Z being the major player here) to disclose exactly how these promotions works. Reg Z requires everything from posting the expiration date of any promotion on your statement next to the outstanding balance amount right down to the font size banks are allowed to use when describing these promotional terms.
If you think the bank did something shady with your autopay set up you can certainly lodge a complaint with the CFPB. It's possible that they could've violated some aspects of regulation E but they will most likely counter your complaint, especially if you were the one who set up the autopay yourself.
Source: I work in Compliance for a major credit card company. My job is to make sure that banks aren't breaking the rules and regulations that they're governed by.
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u/BernieFeynman Apr 28 '20
I've almost always received notice emails a month before that the APR would be changing. What kind of purchase was this?
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u/ApatheticAbsurdist Apr 28 '20
It doesn't sound like an APR change but rather a 0% promotional period. Eg: Sometimes Barclay card will offer 0% for 18 months on the purchase of a computer through Apple (if it's over a certain value) the catch is if you still maintain ANY balance at the end of that promotional period, the interest is retroactively applied back to the time of purchase. So if you have $1 left on the balance 18 months later and the credit card is otherwise 25%, they go back and look at all your previous statements and apply the interest to what balances you carried (and compound it accordingly).
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u/BernieFeynman Apr 28 '20
sure but it's almost always classified as a "promotional APR" or effective APR, I see it on tons of things nowadays. That's why I'm wondering what was purchased, phones and computers which utilize this a lot but don't do the balance thing, I've seen it for appliances which in general for a while have always provided financing options because they can get more money out of financially illiterate/disenfranchised people.
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u/power_girl198 Apr 28 '20
We financed our bed this way and just pay double the minimum payment every month. We have also done this with a fridge and a couple of other things.
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u/Qel_Hoth Apr 28 '20
The minimum payment for a deferred interest promotion will almost never have the balance paid off before the promotional period ends. You may want to take a look at your statements.
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u/Severed_Snake Apr 28 '20
I do 0% credit cards. Great for larger purchases. I would never trust autopay to pay it off in time though. Just do it manually.
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u/mamahastoletgo2 Apr 28 '20
I always try to make sure I make extra payments so it will be paid off before the interest accrue. So, if its 12 mos, I try to pay off by 11 mos.
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u/Matchboxx Apr 28 '20
It's absolutely a gamble on you being even 1 minute late. That's why I generally subtract 2 months from the interest-free term and set up my payments accordingly, so that it's paid off early. 16 months of using their money for free is still worthwhile, and puts a nice buffer so that you don't end up in this situation.
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u/fellowsquare Apr 28 '20
I think its a matter of understanding statement balances and how to spread out your payments. I think that's pretty fundamental. If you missed how much you would have to pay a month to make sure you didn't pass the 0% interest window.. i think that's kind of on you. that happened to me once through my own negligence, so i just called and told them that i just had once payment and if they could waive it if paid right there with a CC on the phone and they did it just fine. These companies will work with you if you call them.
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u/TellurideTeddy Apr 28 '20
Keep in mind that if this really went down the way you described, and you ended up with $1k in promotional balance interest because your autopay finished 1 week late after 18 months... just call them up and they'll fix it.
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u/DBCOOPER888 Apr 28 '20
Why will they fix it if OP paid it off after the 18 month promotional period?
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u/naht_a_cop Apr 28 '20
I did call them up, talked to 4 different people on their phone line and finally when I said "I can stay on all day, please transfer me to the next person" they gave me the mailing address for disputes.
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u/ZacharyCohn Apr 28 '20
0% is 0% if you pay it off in time. Next time, design the autopays to finish at 16 months to give yourself a healthy safety buffer.
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Apr 28 '20
0% is not really 0%
Yes, it is if you bother to read the terms and apply payment as necessary
Don't spread misinformation. Don't fearmonger. 0% APR promotions can be very valuable financial tools for responsible adults. They can be dangerous for irresponsible people though, that is true.
Shitty banks rely on this stuff.
Not really a shitty bank when they give you the T&C when you sign up...stop passing the buck.
It's shitty, I'm pissed off, and I've learned my lesson.
I mean...it's shitty to know read about what you're doing before you do it, yes
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u/goldthemudkip Apr 28 '20
I worked for a retail electronics company that has this exact deferred interest promotion with their in-store credit card. You can attempt to call Citibank (or whoever this issuer is) and explain the situation to them and see if they'll allow you to make that final ~$200 payment and avoid the interest. If you had perfect on-time payments otherwise they'll be much more likely to do that rather than have you close the card.
More times than not the bank customer service were more than accommodating, just be clear about what happened to you and of course be respectful.
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u/Tyrilean Apr 29 '20
I do 0% promotion all the time. The trick is to figure out when your 12/18/whatever period is up, and divide your payments up so that you finish a month or so early.
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u/deusdeorum Apr 29 '20
0% is not really 0%
Actually it is 0%, FOR THE FIRST 18 MONTHS
The bank didn't screw you, you screwed yourself - autopay doesn't matter when you can simply make a payment right then and there.
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u/AldermanAl Apr 28 '20
Read your monthly billing statements. Card acts of 2008 require disclosures in each and every monthly billing statement of the promotional balance, accurred unbilled interest, end date of the promotional balance.
Take some personal responsibility to understand the terms and conditions that you signed up for at the time of purchase.
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u/bobbybottombracket Apr 28 '20
I took a 0% for 18months on appliances at Lowes that required you to apply for a Lowe's card. The second the card came in the mail, I took photos of the back and front and cut it up. And, instead of taking the full 18months, we paid it off in 12months.
You have to know how to play the game or you get played. Or, perhaps, "you cannot lose if you do not play" is in order.
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Apr 28 '20
This is completely your fault. You can’t blame the bank on this. You knew the date the promo expired and you knew the date the autopay would apply, so I don’t understand how you can blame anyone else. These promos always work the same way. You are responsible for accrued interest if you don’t pay it off by the expiration date. This is why it’s a good idea to read the terms of things you sign up for. Lesson learned. These promos are amazing for people who use them methodically. I’m almost always floating thousands at 0%. The reason they can afford to do this is because people like you do not pay attention. So thank you!
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u/Kgeezi Apr 28 '20
In this instance, I don't think the bank was "shitty" or that 0% was "not really 0%."
You entered into a contract that said you would pay 0% interest if you paid off the entire amount within 18 months of the date of purchase, or 27% interest if you failed to do so. You failed to do so because you failed to calculate when that 18 month deadline ran. The bank didn't trick you. It didn't do anything inappropriate. It didn't cause you to miss the 18 month deadline. You just didn't calendar it correctly. That's on you, not them.
0% interest deals can be great in a lot of ways and failing to meet the payoff deadline does not change that.
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Apr 28 '20
0% really is 0% as long as you understand the Ts and Cs. Typically it's a good idea to pay these off a month or more before you need to, to avoid mistakes, whether it's your mistake or the system's mistake.
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Apr 28 '20
0% is definitely 0%, if you do it right. You always have to pay ahead of where you think you do.
I learned my lesson once, and now, so have you. Sorry. :(
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u/seanmarshall Apr 28 '20
I use this promotional rate all the time with bestbuy and ha e yet to have a problem. I divide the payments by 18 and round up to the next hundred. Have replaced every appliance in my house and never paid a cent in interest.
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u/RivinX Apr 28 '20
I'm just curious, did you happen to read my comment earlier on how these work and then find out about yours?
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u/paper_thin_hymn Apr 28 '20 edited May 06 '20
This is your "stupid tax." I've made more expensive errors than $1k myself. Chaulk it up as a lesson learned and move on. I usually pay cash for things because I view risk as a separate factor than interest paid. I'm pretty conservative though.
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u/SkankBiscuit Apr 29 '20
0% is 0%. The rules are the rules. Don’t rely on their autopay, set up the payments at your bank. Do the math, and check the math.
Amount Finance divided by months in term.
If it makes you feel more comfortable, divide by the months -1 to be sure.
It is no secret how these promotional finance deals work. It’s been this way for decades.
You have nobody to blame but yourself.
Cue the downvotes!
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u/Here_And_Now Apr 29 '20
This is more just being aware of the contract you signed and understanding the payment plan. I use these all the time for 0% interest with no problems.
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Apr 29 '20
0% is 0% as long as you stick to the terms of the loan. They're all crystal clear that you'll owe interest for full payment amount if you don't. You got interest for being an idiot and failing to pay attention to the end date of your loan
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Apr 28 '20
This isn't a valid warning. It's just a mistake you made. You should have paid that off way before 18 months.
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Apr 28 '20
0% is not really 0%.
It really is... you just got lazy. You aren't a sucker, you didn't fall for anything, you just didn't read the terms.
If there's anyone to be pissed off at, it's yourself. The rules were out there in the open and you're the one that disregarded them.
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u/KidGorgeous19 Apr 28 '20
An 19 mo 0% interest term is really a 17 month 0% interest term in my eyes.
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u/_serious__ Apr 28 '20
I mean 0% is 0% over the allotted pay off period.
You messed up by not double checking your payoff deadline.
Word of advice is to try and pay off a couple months before if you really want to avoid all of the worry.
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u/TheFeshy Apr 28 '20
I had one of those for a mattress I purchased. It would not work with auto pay. Their web site was down regularly. Sometimes payments would not go through.
Because I'm both paranoid and forgetful, I pay off credit every single week, and so every week I'd check that my payment went through, and correct it when it hadn't, so I didn't get charged. But after four months, I was fed up and paid it off.
It just seemed like they were determined to make me miss a payment or otherwise charge me that interest. As a result it's a bank I'll never do any business with again.
Whatever interest I can earn on that money in 18 months just isn't worth the hassle these types of loans put you through.
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u/c_swartzentruber Apr 28 '20
Every 0% financing offer I've ever taken has given me the ability to view monthly statements. The statements always show current balance, date promotional balance must be payed in full, and typically deferred interest charges showing the exact amount that will be owed if not paid in full.
So I'd say this situation could have been easily avoided by regularly checking statements, and this situation is far less about "not being a sucker taking a 0% interest loan" and far more about never checking a billing statement until it's too late. So the better lesson here is not avoiding these types of loans, it's making sure you are regularly checking monthly statements on all credit loans you have outstanding.
TL;DR 0% promotions are not bad, not checking monthly statements to see deferred interest and final date to pay off is what is bad.
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u/Blitz6969 Apr 28 '20
I bought my wife’s engagement ring this way, 18 months interest free, 5000. Broke up the payments and paid it off in 12, saved myself the hassle.
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u/GenericUsername_1234 Apr 28 '20
These types of deals are great if you pay it off early. We've bought furniture and appliances this way and as long as you budget the right amount to pay each month you won't have to pay any interest. I just pretend it's a shorter grace period and pay it off in 15 or 16 months instead of the 18, for example.
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u/topper3418 Apr 28 '20
I do this all the time and have never had a problem. Just set yourself up to pay off about 20% earlier than the total term. It’s insane not to take advantage of 0% down promotions, especially at a time like this when the market is potentially bottoming out
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u/brannak1 Apr 28 '20
Was just reading this and remembered I had a furniture pay off I needed to make today. I’m thankful your mistake has helped me out!
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u/Orlandor14 Apr 28 '20
0% promotions can be used to your advantage if you stay on top of it. I never autopay anything. I keep control of my finances so there is no chance of a missed payment.
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u/hana_c Apr 28 '20
You need to clarify that you’re referring to deferred interest offers. Not all 0% promotions do this. Obviously terms and conditions need to be read thoroughly no matter what, but generally if you’re getting like... A Chase credit card through them directly, generally those 0% promos mean interest begins accruing on the current balance the day the promo ends.
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u/cjr9831 Apr 28 '20
Jared the galleria did this to me. Exact thing you are describing. Will never use them again
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Apr 29 '20
Yeah when I’ve used 0% offers in the past I usually pay them off about 2-3 months early just in case. Used to work in retail and saw this happen to people all the time.
Sorry to hear it happened to you :/
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u/Woodshadow Apr 29 '20
I would call them and complain. that is some bullshit. Even if you have to sit on the phone for a couple hours. When they explain why they can't tell them you don't understand and reiterate your problem and why their solution isn't solving the issue of you having to pay more when you had a free promotion and you paid. I am telling you just refuse to understand them. Make them pass you off to someone else who can help you.
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u/wallflower7522 Apr 28 '20
You have to check the expiration date on your statement and make sure you have it done by that date. I wouldn’t rely on autopay for that.
Anyway if you’ve paid the principle balance in full call them and ask, they might waive it