I have no love for financial institutions, and I take every opportunity to use their promotions against them. If I need something that costs a somewhat substantial sum of money, and a lender is offering a zero percent interest for X months deal, I’ll apply for the credit line even if I had already planned to pay cash.
My current lawn tractor is a perfect example. I needed a new one at the beginning of last season. I happened to be at Tractor Supply one day, and I saw the promotional literature. I had the money for a new one, but if they will give me a year to pay at no additional cost, I’ll gladly use someone else’s money. Which I did. That was the only time that I used the card, and I paid the tractor off months ago.
Banks seem to be wising up, though. Last night, I was browsing for a stump grinder. I have dozens of trees that need to go away, and dozens more that are gone but whose stumps remain as hazards to the mower. DR Power Equipment (now owned by Generac) makes a couple decent ones that I’ve considered before. There was a banner at the top of the page advertising 0% financing. I clicked on it.
I found the fine print interesting. Yes, purchases over $799 are indeed financed at zero percent interest for thirty-six months. BUT, they charge a $150 “Promotion Fee” up front in lieu of interest over the life of the promotion. Effectively, it is prepaid interest, like the balance transfer fees that are so common nowadays. Since it is a fixed amount, the more you spend, the better the deal. I’m sure that is intentional.
I decided to apply, and see how much credit they would give me. I was surprised by the answer: five thousand dollars. So, I could spend eight hundred dollars, plus the one hundred fifty dollars (eighteen and three-quarters percent) or I could get the stump grinder, a wood chipper to eliminate the burn pile, a post hole digger, and replacement teeth and blades for the grinder and chipper, for a total of just under three thousand dollars. That makes the one hundred fifty dollar fee a more reasonable five percent – only slightly more than the typical balance transfer fees on most promotions.
So, I obligated myself for three thousand federal reserve notes worth of power equipment. With it, though, I may very well have most of my property cleared and fenced within a year.
Another sneaky thing that I caught a lender doing this week was the fast one that American Express tried to pull on me. I just bought my annual prepaid phone card, which cost me $530.25. AmEx offered the option of Plan It, which sets up fixed payments for a specified time period instead of letting it fall under normal revolving balance rules. For this convenience, I would have to pay a monthly fee, but no interest would be charged. The monthly fee? $5.05, for a total of $90.90 in fees over eighteen months. But zero interest. I calculated the amount of interest that I would pay at my normal Purchases rate, on that balance with the same monthly payment amount. $97.99. The option would save me $7.09, effectively lowering my interest rate from 22.24% to 20.68%. Yeah, I’ll jump right on that. Not.