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Established Contributor
snowkitty
Posts: 959
Registered: ‎09-10-2012

How does 0% interest work?

I know this is a dumb question but I want to understand how it works. On my Sam's Discover card I charged a 1000.00 tv on it back in December and used a 0% interest for 18 months coupon they had at the store. The transacation went fine and the 0% interest showed up on my receipt but it did not show up on my bill. I called and talked to a csr rep this morning and she said she would code it as 0% interest because it was not showing as that. I hope she does what she says because I don't want to fight interest charges afterwards. Anyways...I also put other charges on that card and pay those in full before the statement cuts. So does the money I pay go towards the tv or towards the other charges? How do they apply money paid? I don't want interest charges sneaking up on me by them applying money to the oldest item.

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Contributor
SpeedingWheels
Posts: 253
Registered: ‎08-06-2012

Re: How does 0% interest work?

In MY experience (and I'm sure somebody will correct me) the minimum payment amount goes towards the PROMO purchase first. 

Anything beyond the minimum payment goes to the HIGHEST APR balance first. (anything you've charged beyond the PROMO purchase). 

Once the additional purchases are zeroed out, additional payments are of course applied to the PROMO. 

 

Thats just MY experience with a 0% purchase via Amazon.. if I'm mistaken I'm sure somebody will correct me :smileyhappy:


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Valued Contributor
bs6054
Posts: 1,673
Registered: ‎11-11-2012

Re: How does 0% interest work?

[ Edited ]

By default, after the CARD act, payments are used first against highest interest rate balances.  But Discover may have some way for you to indicate what goes where when they have set up a special 0% category.

 

Edit: speedingwheels may well be right about promo categories overriding.

Valued Contributor
bs6054
Posts: 1,673
Registered: ‎11-11-2012

Re: How does 0% interest work?

From the FRB site:

 

  • Payments directed to highest interest balances first.If you make more than the minimum payment on your credit card bill, your credit card company must apply the excess amount to the balance with the highest interest rate. There is an exception:
    • If you made a purchase under a deferred interest plan (for example, "no interest if paid in full by March 2012"), the credit card company may let you choose to apply extra amounts to the deferred interest balance before other balances. Otherwise, for two billing cycles prior to the end of the deferred interest period, the credit card company must apply your entire payment to the deferred interest-rate balance first.

    confirming speedingwheels!

Contributor
solxp
Posts: 93
Registered: ‎12-16-2012

Re: How does 0% interest work?


snowkitty wrote:

I know this is a dumb question but I want to understand how it works. On my Sam's Discover card I charged a 1000.00 TV on it back in December and used a 0% interest for 18 months coupon they had at the store. The transaction went fine and the 0% interest showed up on my receipt but it did not show up on my bill. I called and talked to a csr rep this morning and she said she would code it as 0% interest because it was not showing as that. I hope she does what she says because I don't want to fight interest charges afterwards. Anyways...I also put other charges on that card and pay those in full before the statement cuts. So does the money I pay go towards the tv or towards the other charges? How do they apply money paid? I don't want interest charges sneaking up on me by them applying money to the oldest item.


The way it works for most lenders is you will see a new addition to your statement in the balance section that show regular balance and promotional balance and the corresponding interest rates for each type. 

 

Example.

 

Scenario:

You buy a tv with a zero perecent financing offer for 12 months that costs 1000.00, Two days later you charge 200 dollars for misc items on same card. When the statement cuts you should see a balance of 1200.00 but under the breakdowns it should list 

200.00 and the apr

1000.00 zero apr 12 months

Total 1200.00

min due 40.00 

 

Now lets looks at how payments to the account will work

 

Example 1. You receive your statement and make a 250.00 payments. The first 200.00 will go to the regular balance and 50.00 will go to the promotional balance leaving you with zero interest charged on the next statement. 

 

Example 2. You receive your statement and make a 150.00 payment. The entire 150.00 is applied to the regular balance which leaves you with a 50.00 regular balance and 1000.00 promotional balance on your next statement you will be be hit with a interest fee for the daily avg balance of the account minus the 1000.00 promotional balance. 

 

 

While every CC company can set there own terms for promotional offers buried within the fine print for the most part it works like this.


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