If you got an offer for a 0% APR credit card in your mailbox, that would certainly look like a very sweet deal to the naked eye. This would allow you to make purchases on your credit card with no interest incurred whatsoever for 12 to 18 months depending on the limitations of the card. If used correctly, this offer could save you a lot of extra cash in the long run. One important thing you want to consider before going through with signing up for a credit card that offers 0% balance transfers is finding out what the bank and credit card companies get from your business. If you just sign up without doing thorough research first, you could be making a very costly mistake. Keep reading to find out more about what you give up with 0% balance transfers!
What Does The Credit Card Company Get?
You can believe that credit card companies would only offer 0% balance transfers if they stood to gain something from the deal. Credit card companies exist to make money, and that’s always going to be their first goal. Allowing customers to transfer existing balances from a competitor’s card to a new card that offers 0% interest on the balance for a certain amount of time will definitely create a return for them.
When you give a prospective customer the chance to do anything with a 0% interest rate, it’s obviously going to entice people into applying for your card and the companies know that. They also make money on the 3% interchange fees that retailers pay when consumers swipe their cards at checkout. They make even more profit on the balance transfer fees and those customers that don’t pay off their balances before that introductory period ends. There is a high cost associated with taking on a new customer, but the big card companies see it as an opportunity to find new clients that might turn a huge profit for them over time: they can afford to pay the costs through advertising and they’ve done extensive research.
You’re Still Paying Something Up Front
Although you get the benefit of 0% balance transfers while the introductory period lasts, of course you’re paying for the right to that benefit. You have to make at least minimum payments on your existing balance to save yourself money in the long run. Even still, you’ll find that most credit card companies charge you a balance transfer fee for moving that existing balance from your old card provider over to your new 0% balance transfers card. The fee is generally 3%, so if you’re transferring a balance of $3,000 over, you’ll be paying $90 in fees for that. A lot of credit card providers that can afford to offer 0% balance transfers also have an annual fee, so that’s another way that they’ll make money off of your business without you even having to make a purchase.
Avoid Late Fees At All Costs
When you transfer a balance over to a new 0% introductory card, you can’t just let the balance sit there or you’re not really saving yourself any money because you’ll still owe that same amount of money regardless. You also have to put up at least the minimum payment every month or you put yourself in danger of losing the coveted 0% rate you signed up for in the first place. In addition, you’ll also most likely be charged a late payment fee. If and when you lose the 0% rate, you’ll be hit with the penalty rate unless the card you’ve applied for doesn’t have a penalty APR. It’s a wise idea to schedule automatic monthly payments to avoid those late fees unless you have some other way of reminding yourself that the due date is fast approaching. Even if you do go through with automatic payments, you want to have your due dates marked down in a few different places that can keep you accountable for the bill. You also have to make sure that you always have the right amount of money in your checkings account to cover those automatic payments.
They Draw You in to Rack up The Dollars
Once your credit card provider’s bank has you on board as a customer, they find all kinds of ways to cross-sell you on other products or services they make a profit on. They might entice you to open a checkings account with them that charges a monthly fee. From there they might offer you a savings account, an auto loan or a mortgage loan that all make them money even when you get a deal on interest rates.
When it comes to 0% balance transfers, you have to come to terms with the fact that the banks are waiting for you to slip up. Make sure you know the facts so you can avoid a disastrous situation!