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Posted: 11/25/2002 12:30:13 PM EDT
OK...here's one for the accountants and accountant wannabes. Recently I got an offer in the mail from my Credit Card company. Basically, they sent me some blank checks and anything I pay for with these checks will go on my credit card account with an interest rate of 5%. I read the fine print, and think this would be a good idea. Currently, my car loan is at 6%. I was thinking of paying off my car loan with one of these checks. So the question is, would I save money by doing this? It seems to me like a good deal--I get a lower APR rate on my loan, and furthermore, if I am short on money one month or want to pay the loan off sooner, I can basically pay whatever the hell I want on the Credit Card, since minimum payments are low. On its face, it looks like a bargain, so my question is, when a company computes the interest payments on a car and when a credit card company computes the interest on a credit card, do they use different methods? Am I comparing "apples to apples"? Financially speaking, does a loan at 5% on a credit card cost the same as a loan at 5% from a car financing company? This would probably have to do with the methods of compounding. -Nick Viejo. P.S. Side note--I think I figured out how the credit card company makes money on this deal. Supposing you have a $1000 balance on your credit card account. You cash one of these low-interest checks, and the credit card company charges you the low interest rate on that amount. Well, when you pay your credit card bill, you are forced to pay down the LOWEST interest rate first. In other words, on the $1000 previous balance, they will still be charging you an obscene 15% or whatever while you pay off the lowest interest money 1st. I am going to avoid this by paying off the entire balance before writing the check.
Link Posted: 11/25/2002 1:08:31 PM EDT
Link Posted: 11/25/2002 1:11:11 PM EDT
I'm no CPA but I've lived long enough to know car loans are bad enough but credit cards are evil. I would say 1% savings is not worth it and the 5% rate is probably for a short term say 6 months or so. Then it will jump to a regular percentage rate. This guy can tell you all about credit cards and debt. [url]http://www.daveramsey.com[/url]
Link Posted: 11/25/2002 1:23:11 PM EDT
be very careful!! often there is a cash advance or check fee. and even if not, the offers are typically a short term deal. six months, nine, whatever. you must be sure. also i've heard of people accepting these offers and enjoying them for a while, but then as soon as they were late or missed a payment..WHAM! the interest rate went up to some absurd amout. 18%+. depending on your state they can even go into the 20%s. for a saving of 1% i cannot in any way say this is worth the risk. at some point, the bank is going to get you and you will wish you still had the car loan.
Link Posted: 11/25/2002 1:42:44 PM EDT
Thanks for the responses so far. I am generally very suspicious of credit cards, which is why I posted the question here. There is no transfer fee, no cash advance fee, no time limit on how long the interest rate lasts...none of that crap. All the same, one guy did make a good point in which if I was late one month, for whatever reason, they will jack my interest rate way up then I'm stuck with a bad deal. I haven't been late on a debt payment for years, but it may not be worth the risk for a measly 1%. Thanks again for the answers. -Nick Viejo.
Link Posted: 11/25/2002 2:20:38 PM EDT
Don't just pay it off and then write the check for the car. Make sure it has cleared and then give it a day. Everytime I pay off a credit card they try to charge me interest after it is payed off. I always have to call and prove I payed it off before I used their 0percent or whatever they gave me to make me pay it off and use it, to make them take the interest back. You will have to make sure the interest they charge you is correct when you do this, or they get a few bucks off you for free at the higher rate.
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