Banking and Credit

When Interest-Free Offers Aren’t

By  Opher Ganel

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It was 1994, and I was still paying through the nose, as the saying goes, for a mistake I made more than two years earlier.

Back in late 1992, I had just moved with my family to the U.S. and chose to buy a 3-year-old Ford Taurus for $8000, financing $6000 with a 3-year auto loan.

So far, that doesn’t sound too foolish, right?

The problem was that the loan I took out carried a 10.4% interest rate, and the $195 monthly payment took nearly 10% of my after-tax income.


Hindsight is, as they say, 20-20. I should have bought a less expensive car. Had I spent $6000 instead of $8000, my monthly payments would have been $130. The equivalent of getting an immediate 3% raise.

Be that as it may, salvation came in the unexpected form of an offer from a credit card issuer.

An Unexpected Interest-Free Offer that Really Was

At the time, I carried a credit card from First USA Bank, and they sent me an unsolicited book of “convenience checks.”

Even today, issuers often send out convenience check offers.

This one was different. It was interest- and fee-free.

It allowed me to use the checks to draw on my credit card’s available balance for almost any purpose, including to deposit in my checking account.

The only thing I couldn’t use these checks for was to (directly) pay my credit card payments.

The kicker was that they’d treat the checks I wrote the same way they treated my credit card purchases – they wouldn’t charge any fee or interest unless and until I didn’t pay my next statement balance in full.

Hello convenience checks, and goodbye high-interest auto loan!

I immediately wrote a check from the card to my checking account in the full $2000 amount I still owed on my auto loan, and used this “found money” to pay off my 10.4%-interest auto loan.

Of course, I now had an extra $2000 balance on my credit card that needed to be paid off, and I didn’t magically have the money to pay it.

Well, I didn’t have $2000, but I did have $195 that would have gone to the auto loan, and I had those magical convenience checks to make up the difference!

Long story short, I paid the credit card statement in full each month by depositing another convenience check into my checking each month, with each one lower by $200.

Ten months later, the total amount was paid off.

I had saved the 10.4% interest for the last 10 months of my ill-advised auto loan.

Today’s Interest-Free Offers Aren’t Really

Perhaps it was a coincidence, but First USA stopped offering that sort of convenience check a short time later, and a few years after, Banc One bought them, lock, stock, and barrel.

As I alluded to earlier, you can still get convenience check offers from credit card issuers today.

They even promote them as “interest-free.”

Don’t believe it!

The most recent offer I got stated that I wouldn’t be charged any interest if I paid it off within a year. That’s all well and good, but they would charge a 5% “fee” upfront!

Isn’t that nice for them?!

That translates to them charging me the equivalent of over 9.1% annual interest, all ahead of time!

That’s almost as bad as my old 10.4% auto loan. In fact, considering today’s near-0% interest rates and my hugely improved credit score, that 9.1% is equivalent to over 20% back in the early 90s!

Today’s Tip – Upfront Fees Are (Usually) Worse than Interest

While such “interest-free offers” may offer the equivalent of lower interest than simply carrying a balance on your card, they’re far from free.

In fact, they charge the equivalent of more than 6x the market interest rate, and they take it all upfront. That means that even if you suddenly have some extra cash and can pay off the balance, you save nothing because the fee was already charged. Interest, on the other hand, would only be charged for as long as you owe the money.

The Bottom Line

When something seems too good to be true, it usually is.

Those old First USA interest- and fee-free convenience checks were the exception that proves the rule.

Today’s convenience check offers are simply a thinly veiled invitation to get yourself into financial trouble by borrowing more against your credit than you would otherwise, thereby routing much more of your hard-earned cash to line the pockets of your credit card issuers.

Do yourself a favor and avoid using them (unless you have no better options).

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Opher Ganel

About the author:

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.

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Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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