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.