What's the catch with 0% APR credit cards?

Passions

Diamond Member
Feb 17, 2000
6,855
2
0
I got a special 0% APR offer from MBNA through June 2005. So I'm thinking about transfering $6,000. As long as I make the payments on time and I paid it all off before June, it's all peaches and cream right?

My biggest question is if I can pay it all off early, without penalty. I heard something that you cant or you charged?

It just sounds too good to be true.



? The promotional Annual Percentage Rate (APR) offer for Balance Transfers and Check Cash Advances is 0% through your statement Closing Date in June 2005. Thereafter, the APR may vary and will be applied to both new and outstanding Balance Transfer and Check Cash Advance balances. However, if any minimum monthly payment is not received by the Payment Due Date, then as of the first day of the billing cycle in which such payment is missed, the promotional period will end, and the APR for all promotional balances will vary according to the Variable-Rate Information disclosed in your Account Agreement, as may be amended. The current indexed APR for Balance Transfers and Check Cash Advances is 12.25%, which may vary and is subject to amendment.

We will allocate your payments to balances (including new transactions) with lower Annual Percentage Rates (APRs) before balances with higher APRs. Borrowing the full amount of your available credit may result in an overlimit fee, as applicable.

The transaction fee for balance transfers is 3% of each transaction, minimum $5, maximum $30.

§Available credit amount may not include recent purchases, advances, or transfers. When determining your transfer amount, be sure to plan for applicable fees and finance charges (see your account agreement for details).
 

cchen

Diamond Member
Oct 12, 1999
6,062
0
76
Many credit cards offer promotions like this. You can pay it off anytime you want. Its like a regular balance on a credit card except that it gets the promotional interest rate.
 

machintos

Golden Member
Mar 1, 2003
1,652
0
0
there' s no catch. Just as long as you don't default on your payment, you will keep the 0% apr until June 2005. If you do pay off the balance by June 2005 then that's it, no early payment penalty or anything like that.
You do have to pay the $30 in fee if you're planning on trasfering $6000 in balances, though.

BTW, MBNA Rocks!!!
 

user1234

Banned
Jul 11, 2004
2,428
0
0
There are a few catches, but if you understand them and know how to avoid them, then you can really get a zero percent loan (=free lunch) at least for a few months. I should know, I have $25K on zero percent, and haven't paid a dime in interest or fees. The most important rule is that after you transfer the balance, you should not use the card for normal purchases, because the APR on purchases will usually not be zero percent. But your monthly payment (which will probably the minimum required) will always first go to cover your balances with the lowest APR - that is your outstanding balance from the initial balance transfer, so your purchase balance cannot be paid off until you pay off the initial balance transfer amount. So if you make any purchases, you will pay interest on it until the initial balance transfer amount is paid off. So just remember to not use the credit card for anything else, and pay your minimum monthly payment on time, and you got yourself a zero percent loan. Also remember to pay off the balance before the last day when it starts to accrue interest (read carefully which is the last zero percent billing cycle).

BTW, these offers vary and some of them have just been amazing in the past year or so. For example, I got a zero percent balance transfer without any transaction fees, plus they gave me a "balance transfer check" which I could deposit into my checking account (which is exactly what I did), so it's more like a cash advance, not just a balance transfer. And all this without any interest or fees !
 

xSauronx

Lifer
Jul 14, 2000
19,586
4
81
i get 0% offers all the time from various companies: and most are 0% on balance transfer AND purchases (with no fees) for 5-12 months.
 

vood0g

Golden Member
Mar 5, 2004
1,442
1
0
0% is cool. i get that at times. you also gotta love the 2.9% for the life of the balance promotions also. :)
 

laurenlex

Platinum Member
Feb 26, 2004
2,370
1
0
No catch. They are just hoping that you can't pay it off in time, then they have somebody else's customer to rape and pillage.
 

dullard

Elite Member
May 21, 2001
25,054
3,408
126
If done properly, you can avoid the catches. Here are the potential pitfalls.
1) Read your other CC agreements carefully, some are sneaking in text that they charge you a heafty fee to transfer balance to another CC. Of course this is still rare, but just check to be sure.
2) They hope you are even one day late on a minimum payment. Then the interest rate skyrockets (and is increasing over time).
3) They hope you use that CC for new purchases. Then you'll be paying a huge interest rate for the new purchases while thinking you have a 0% card.
4) They hope you get trapped in 0% land, unable to ever pay it off, and you get further and further into debt until one of the 3 catches above applies.
5) One day, if the 0% offers end, do you have an exit plan? Or are you going to be stuck paying 12%-22% interest on this debt?
6) Applying for CC after CC to keep the 0% loans going will possibly hurt your credit rating which means more expensive home mortages, more expensive car loans, more expensive insurance, etc.

Conclusion: If you treat this as a temporary situation to get you out of a tough spot, and if you stop buying things which put you in debt in the first place, then yes you can get this great deal. If not, you'll be hurting in the long run.

Note: As an MBNA CC holder for 10 years, I can say they've done nothing personally to me that I can complain about. They seem to love increasing credit limits if that matters to you. And you may love this or may hate it, but MBNA has been President Bush's largest campaign contributer.
 

shilala

Lifer
Oct 5, 2004
11,437
1
76
When we make a major purchase (four wheeler, living room furniture, something like that) we always use our regular credit card. We then apply and transfer the balance to a zero percent card. We always pay it off ASAP, usually within a few months.
It's nice to get free loans :) Works great and we've used the strategy for years.
Screw up and the credit card company wins big.
Don't screw up and you win big.
They're willing to take the gamble, and it's a truly valuable reward to folks who do a good job taking care of their finances.
It's really win/win for the credit card companies.
***Big Point***
It's absolutely imperitive that you call and cancel any and all credit cards you don't actively use. We only ever have two open at a time.
If you go to take a bank loan for a house, education, whatever, the bank does not consider your balance on the card, but your credit limit.
They consider a $10,000 credit limit as $10,000 of debt (because it can be in just a few minutes if you go nuts). If you have 10 credit cards open (even includes department store cards) with a net $100,00 credit limit, the bank considers that $100,000 of debt even if you carry a zero balance.
That'll severely bork your chance of getting any sort of loan regardless of your credit rating or income.
 

rh71

No Lifer
Aug 28, 2001
52,853
1,048
126
Originally posted by: shilala
***Big Point***
It's absolutely imperitive that you call and cancel any and all credit cards you don't actively use. We only ever have two open at a time.
If you go to take a bank loan for a house, education, whatever, the bank does not consider your balance on the card, but your credit limit.
They consider a $10,000 credit limit as $10,000 of debt (because it can be in just a few minutes if you go nuts). If you have 10 credit cards open (even includes department store cards) with a net $100,00 credit limit, the bank considers that $100,000 of debt even if you carry a zero balance.
That'll severely bork your chance of getting any sort of loan regardless of your credit rating or income.
Hmm, I don't know about this. I thought it was bad for your credit score to close accounts. I have quite a few not being used but we got the mortgage approval with no problem... I think it would've affected me negatively if they actually count the available credit limit against me in that regard.
 

kami333

Diamond Member
Dec 12, 2001
5,110
2
76
Originally posted by: rh71
Originally posted by: shilala
***Big Point***
It's absolutely imperitive that you call and cancel any and all credit cards you don't actively use. We only ever have two open at a time.
If you go to take a bank loan for a house, education, whatever, the bank does not consider your balance on the card, but your credit limit.
They consider a $10,000 credit limit as $10,000 of debt (because it can be in just a few minutes if you go nuts). If you have 10 credit cards open (even includes department store cards) with a net $100,00 credit limit, the bank considers that $100,000 of debt even if you carry a zero balance.
That'll severely bork your chance of getting any sort of loan regardless of your credit rating or income.
Hmm, I don't know about this. I thought it was bad for your credit score to close accounts. I have quite a few not being used but we got the mortgage approval with no problem... I think it would've affected me negatively if they actually count the available credit limit against me in that regard.

It's usually a fine line between having too much credit available and having good (older) accounts open.
 

dman

Diamond Member
Nov 2, 1999
9,110
0
76
There are different schools of thought on the open accounts but inactive stuff, I think your credit score can go down by closing lines of credit that you aren't using.

Some of the catches were hinted at above but I've seen:

0% cards that require you to make a monthly purchase (doesn't say a minimum amount). Follow that with the line about paying off the lowest APR balances first above...
and
Some note that if a late payment is reported by ANY creditor that the rate can increase on their card.

I'm currently coming to the end of a 0% deal I had that is pretty good and would like to extend it. Fat wallet finance forum has a lot of good info on these deals. I think the offers are drying up again, I've been getting a few 2.99% mixed in with the 0%'s now.
 

shilala

Lifer
Oct 5, 2004
11,437
1
76
Originally posted by: rh71
Originally posted by: shilala
***Big Point***
It's absolutely imperitive that you call and cancel any and all credit cards you don't actively use. We only ever have two open at a time.
If you go to take a bank loan for a house, education, whatever, the bank does not consider your balance on the card, but your credit limit.
They consider a $10,000 credit limit as $10,000 of debt (because it can be in just a few minutes if you go nuts). If you have 10 credit cards open (even includes department store cards) with a net $100,00 credit limit, the bank considers that $100,000 of debt even if you carry a zero balance.
That'll severely bork your chance of getting any sort of loan regardless of your credit rating or income.
Hmm, I don't know about this. I thought it was bad for your credit score to close accounts. I have quite a few not being used but we got the mortgage approval with no problem... I think it would've affected me negatively if they actually count the available credit limit against me in that regard.

When the bank is doing an income to debt ratio, they'll use the open credit accounts.
Open cards will trash your ratio. If you make a million a year and only layout $100,000 a year, you're looking at 1:10 or 10%. Your rating would be a 10. That's excellent. Different banks have different criteria. For new homeowners our bank wants 30% or less before you buy a home.
They mix this rating in with your credit score and your credit report to determine whether you are a good candidate for a loan. They also heavily weigh in your down payment. If you have more than 20% down and you paying appraised value or less for the home, they have a good property with plenty of equity built in to back the loan. If you default, they're sitting pretty.
It does hurt your credit score each time you apply for credit, Hurts it even more to be denied for credit.
I guess the short answer is...
You found the balance you needed to satisfy your bank's criteria. Your open cards didn't whack your income to debt ratio.
Income to debt was all the rage before credit scores came around. Income to debt ratios rely solely on what you report. If you report that you don't have an electric bil, voila, better score. The trick is to only report what they can see and lie about the rest ;) Reporting the $50,000 you owe to Eddie the Knife for gambling debts is going to seriously screew you over.
My wife and I own a number of rental properties now, and the whole lending criteria has changed. The bank actually wants to lend us money, so they rely on our net worth and equity to back loans. They really don't care that if I break my leg our bills won't get paid.
None of it really boils down to common sense, but they have to have something to go on. That's why all the tools.
 

royaldank

Diamond Member
Apr 19, 2001
5,440
0
0
Plenty of people will transfer debt for a year or two between 0% offers. It's a great way to pay back some debt with no more interest. Just be careful, read the fine print, and abide by the rules.
 

Garet Jax

Diamond Member
Feb 21, 2000
6,369
0
71
Other than the up front transfer fee, there is no catch. From their perspective though they are getting an ideal customer. Someone who already has a balance on a CC is more likely to get another one (once they pay the current one off). Besides 0% is only for a limited time so it is likely you won't be able to pay the total by the deadline and will start paying the higher rates.
 

spidey07

No Lifer
Aug 4, 2000
65,469
5
76
One big catch is many times there is a clause that says "late on ANY agreement"

That any agreement could be car payment, cable bill, another credit card, a store card, etc. and then they slap a 24% interest rate on the balance.

That a "promotional" APR and they can revoke it depending on the fine print.
 

RossMAN

Grand Nagus
Feb 24, 2000
78,794
266
116
Originally posted by: spidey07
One big catch is many times there is a clause that says "late on ANY agreement"

That any agreement could be car payment, cable bill, another credit card, a store card, etc. and then they slap a 24% interest rate on the balance.

That a "promotional" APR and they can revoke it depending on the fine print.

Yep I was wondering if someone was going to bring this up.

If you're even 1 day late from a payment, they reserve the right to cancel your promo 0% APR. Then it goes to the "regular" rate which is probably 14.99% or higher.

So don't make any late payments!
 

spidey07

No Lifer
Aug 4, 2000
65,469
5
76
Originally posted by: RossMAN
Originally posted by: spidey07
One big catch is many times there is a clause that says "late on ANY agreement"

That any agreement could be car payment, cable bill, another credit card, a store card, etc. and then they slap a 24% interest rate on the balance.

That a "promotional" APR and they can revoke it depending on the fine print.

Yep I was wondering if someone was going to bring this up.

If you're even 1 day late from a payment, they reserve the right to cancel your promo 0% APR. Then it goes to the "regular" rate which is probably 14.99% or higher.

So don't make any late payments!

well the big gotcha is it could be a late payment on ANYTHING. Not just this one card or card company.
 

Anonemous

Diamond Member
May 19, 2003
7,361
1
71
so would it be a good idea to transfer student loans to these 2.99% fixed for life deals or no?
 

Passions

Diamond Member
Feb 17, 2000
6,855
2
0
Originally posted by: spidey07
Originally posted by: RossMAN
Originally posted by: spidey07
One big catch is many times there is a clause that says "late on ANY agreement"

That any agreement could be car payment, cable bill, another credit card, a store card, etc. and then they slap a 24% interest rate on the balance.

That a "promotional" APR and they can revoke it depending on the fine print.

Yep I was wondering if someone was going to bring this up.

If you're even 1 day late from a payment, they reserve the right to cancel your promo 0% APR. Then it goes to the "regular" rate which is probably 14.99% or higher.

So don't make any late payments!

well the big gotcha is it could be a late payment on ANYTHING. Not just this one card or card company.


How would they know? Like if I am late on a verizon bill, they would know about it??? wtf.


 

spidey07

No Lifer
Aug 4, 2000
65,469
5
76
read the fine print.

yeah, its pretty messed up but its in there. Something along the lines of "if you are in default under any agreement", then you look up what "default" means in the fine print and it says any occurance of:
1) late payment
2) over credit limit
3) late for work
4) failed to use turn signal
5) etc
 

user1234

Banned
Jul 11, 2004
2,428
0
0
Originally posted by: shilala
Originally posted by: rh71
Originally posted by: shilala
***Big Point***
It's absolutely imperitive that you call and cancel any and all credit cards you don't actively use. We only ever have two open at a time.
If you go to take a bank loan for a house, education, whatever, the bank does not consider your balance on the card, but your credit limit.
They consider a $10,000 credit limit as $10,000 of debt (because it can be in just a few minutes if you go nuts). If you have 10 credit cards open (even includes department store cards) with a net $100,00 credit limit, the bank considers that $100,000 of debt even if you carry a zero balance.
That'll severely bork your chance of getting any sort of loan regardless of your credit rating or income.
Hmm, I don't know about this. I thought it was bad for your credit score to close accounts. I have quite a few not being used but we got the mortgage approval with no problem... I think it would've affected me negatively if they actually count the available credit limit against me in that regard.

When the bank is doing an income to debt ratio, they'll use the open credit accounts.
Open cards will trash your ratio. If you make a million a year and only layout $100,000 a year, you're looking at 1:10 or 10%. Your rating would be a 10. That's excellent. Different banks have different criteria. For new homeowners our bank wants 30% or less before you buy a home.
They mix this rating in with your credit score and your credit report to determine whether you are a good candidate for a loan. They also heavily weigh in your down payment. If you have more than 20% down and you paying appraised value or less for the home, they have a good property with plenty of equity built in to back the loan. If you default, they're sitting pretty.
It does hurt your credit score each time you apply for credit, Hurts it even more to be denied for credit.
I guess the short answer is...
You found the balance you needed to satisfy your bank's criteria. Your open cards didn't whack your income to debt ratio.
Income to debt was all the rage before credit scores came around. Income to debt ratios rely solely on what you report. If you report that you don't have an electric bil, voila, better score. The trick is to only report what they can see and lie about the rest ;) Reporting the $50,000 you owe to Eddie the Knife for gambling debts is going to seriously screew you over.
My wife and I own a number of rental properties now, and the whole lending criteria has changed. The bank actually wants to lend us money, so they rely on our net worth and equity to back loans. They really don't care that if I break my leg our bills won't get paid.
None of it really boils down to common sense, but they have to have something to go on. That's why all the tools.


Well, having open inactive credit cards actually increases your credit score because a low ratio of outstanding balance to available credit increases your credit score. But I understand your point about it decreasing your chance to get a loan, because lending instituitions look beyond the credit score, and they may hold it against you if you have too many open credit lines. But that's only important to people like you that go begging for big time loans twice a week, for the normal consumer only the credit score matters. And get real, the average number of credit cards per person in the US is 10, which is what most people have, as different credit cards are more appropriate for different occasions, depending on rewards programs, cashback, rental car insurance, money back guarantee, extended warranties, etc. I think most people have at least 3 active credit cards, and a few inactive ones.