topic Re: What's the Big Deal with APRs? in Credit Cards

What's the Big Deal with APRs?

laboi_22 — Thu, 04 Oct 2012 12:15:52 GMT

I often see people here slamming cards for high APR. Of course there are those who say "if there are good rewards and you PIF APR should not matter". I also read lots of reviews about credit cards. In particular store credit cards. They are always getting a bad rep for high APRs. Yes they do have high APRs but when you think about it, unless you are carrying a VERY VERY large balance, it's not that bad. I recently obtained the Buckle card because their jeans are expensive, but I love them. I didn't get the card for rewards as much as for the ability to pay in store, in easy to pay installments. For example here is my last jean purchase and how I broke it down:

I knew that my statement period had just begun. I wanted some jeans that were going to cost me $204 with tax. I purchased them:

Before the statement due date (about 25-30 days) I went in store and made a payment of $65 and some change so that I now owe an even $139. I then took out my handy interest calc and here is my payment plan:

month 1: $71,72

month 2: $71.72

I will have paid a total of $4.44 in interest for making 3 monthly payments that are easy to pay right in store, and now I have a pair of amazing jeans to boot! So $4.44 is not that much for me (based on 24.99% APR).

So is $4.44 really that expensive to carry a balance? I don't really mind the extra $4.44. I realize that that amount will take away from the amount of rewards I would have earned, but who cares. I didn't get the card for rewards per say. You can only earn $10 any way per quarter. What does $10 buy you at Buckle? Not a thing!!

Thoughts...

Re: What's the Big Deal with APRs?

Anonymous — Thu, 04 Oct 2012 12:23:38 GMT

well, many of the store cards are places where people are likely to carry a very high balance-hardware stores, furniture stores, amazon. Not all of them have amazon's 0% APR for X months when you make a big purchase.

Re: What's the Big Deal with APRs?

youngandcreditwrthy — Thu, 04 Oct 2012 12:37:17 GMT

You just answered your own question...
Sure, it's okay to toss a creditor a bone with a few bucks in interest but say you carried a $2,000 bal on your BKE Card at 24.99%, then in a year, you'd pay something for like $500 in interest (very rough estimation). Just pif or as you are doing, limit balance carrying :-)

I love BKE btw! Was my first job ever in 2006, and I still have plenty of jeans to show for it... Ohhhhhh how I wanna get that BKE Card!! Lol but I can't app for any more accounts atm LOL!

Re: What's the Big Deal with APRs?

laboi_22 — Thu, 04 Oct 2012 13:06:34 GMT

I can see the point that when carrying a balance (a large one), it can get costly especially if you only pay the min payment due. I love Buckle too. Wish I could get that 40% discount LOL for working there.

You don't have to apply for the Buckle card. It will be a SP if they pre-approve you. Just create an online Buckle account, add somethings to your cart, act like you are checking out, and if you are pre-approved you can accept and it will tell you your CL and open the account which you can then start charging to right away. The only factor that will be affected is AAOA but if you opened a bunch a recent accounts might as well take a SP and open another and let them age together, just my thoughts!

Re: What's the Big Deal with APRs?

navigatethis12 — Thu, 04 Oct 2012 13:32:04 GMT

I don't get the rate fixation either. A lot of the cards I have have the highest rate since my history is so young and it does not bother me at all. I have never carried a balance and do not plan to.

Anyway, most people do not plan to carry a balance for a long time. Like you, they think they will be able to pay it off in a few months. Then they lose their job and were not saving money and the balances keep getting higher and higher. Another scenario is an emergency happens and they have to use all of their cash reserves. Without any money, those few months turn into six, then twelve, and so on.

In my opnion, you should avoid carrying a balance as much as possible. It may only be $4, but that is $4 you could have saved if you saved up for the clothes. I don't mean to knock you, but $200 for jeans seems silly, especially if you cannot afford them.

Re: What's the Big Deal with APRs?

Anonymous — Thu, 04 Oct 2012 13:43:54 GMT

@navigatethis12 wrote:
I don't get the rate fixation either. A lot of the cards I have have the highest rate since my history is so young and it does not bother me at all. I have never carried a balance and do not plan to.

Anyway, most people do not plan to carry a balance for a long time. Like you, they think they will be able to pay it off in a few months. Then they lose their job and were not saving money and the balances keep getting higher and higher. Another scenario is an emergency happens and they have to use all of their cash reserves. Without any money, those few months turn into six, then twelve, and so on.

In my opnion, you should avoid carrying a balance as much as possible. It may only be $4, but that is $4 you could have saved if you saved up for the clothes. I don't mean to knock you, but $200 for jeans seems silly, especially if you cannot afford them.

I have to agree with this. I also don't really care about my cards interest rates, I've never carried a balance and don't forsee it happening anytime soon. That being said, a lot of the time, people don't intend to carry balances for the long haul. They make a large purchase and plan to pay if off in like 3 months, but then something happens and their expenditures go up or their income goes down and 3 months becomes 6 months, 12 months or longer while the interest racks up.

Also, about the jeans. I'm sorry, but I just can't see paying that much for a pair of jeans, especially if you have to finance them. I get my jeans at Walmart for $15. I mean, it's your money, but I can't believe you can't put it to a better use than that.

Re: What's the Big Deal with APRs?

jsickz32 — Thu, 04 Oct 2012 13:49:15 GMT

Everyone has something they like to spend their money on so if op likes to spend 200 on jeans then its fine. I spend 150 on 1 pair of shoes so i dont think its big deal really. and seriously carrying a balance is seen as such a bad thing on this forum is crazy.

Re: What's the Big Deal with APRs?

Cdnewmanpac — Thu, 04 Oct 2012 14:12:04 GMT

I don't use store cards, so can't address anything about them specifically. But one reason some of us want a low-APR card in our arsenal is because things happen unexpectedly. For example, kids. Or hailstorms (roof) or cars break down. Or the opportunity cost of paying cash exceeds that of the total interest payments. There are lots of sound economic reasons to purchase things with borrowed money. Suppose you have a card with a baseline 7% interest rate and you want to replace your old, inefficient woodburning fireplace with a new gas insert. In our case, this would cost about $4000. We could save for a year and pay cash, but continue to pay the cost of wood, higher electric/gas costs to compensate for the heat loss through the chimney and the loss of enjoying a simple to use, efficient, pleasant looking gas fire. Or we could pay for it with a credit card and pay it off over one year. We'd pay $154 in interest, but have the use/enjoyment/efficiency of the insert for an entire year. A rational person might decide that the year's use is worth $154. However, with a 29% interest card, that interest cost for the same 12 months goes to $688. Something very few people would rationally choose. So lower interest cards allow carrying a balance to be a rational choice rather than a desperate measure.

Re: What's the Big Deal with APRs?

Anonymous — Thu, 04 Oct 2012 14:18:48 GMT

@jsickz32 wrote:
Everyone has something they like to spend their money on so if op likes to spend 200 on jeans then its fine. I spend 150 on 1 pair of shoes so i dont think its big deal really. and seriously carrying a balance is seen as such a bad thing on this forum is crazy.

I don't think financing something is always bad, but it depends on what it is. If there's a storm and your roof is destroyed, you need to get a new roof, even if it takes a couple months to pay for. If your car's transmission goes, you need to get that fixed right away even if you can't pay for it all right now, so you can get to work. It's the financing of luxery items that's really a bad idea.

If you're in the position where you want that $200 pair of jeans and you can pay for it right away without any difficulty, then go ahead, there's nothing wrong with that. It still seems a little crazy to me, but whatever, it's not my money. But having to go back to the store every month to make payments on a pair of jeans is absolutely nuts to me and doesn't seem like healthy financial behavior.

Re: What's the Big Deal with APRs?

migliogiorni — Thu, 04 Oct 2012 14:32:04 GMT

I personally would not pay 200 plus for jeans, but who am i to talk I love Air Force 1's and those will cost me 100. More power to OP, it's all about managing credit and having a plan.

Re: What's the Big Deal with APRs?

jsickz32 — Thu, 04 Oct 2012 14:33:27 GMT

True but then makes you wonder whats the point of store cards like express, VS etc. People who buy at such stores want that card cuz gives them the flexibilty of buying more things. If they usually can spend 100 worths of things that card allows them to buy 200 now and they are ok with paying 4 dollars on interest just so they can do that. I dont see anything wrong with it and op was talking about small amounts not 4 or 5 digits amounts.

Re: What's the Big Deal with APRs?

jsickz32 — Thu, 04 Oct 2012 14:35:24 GMT

@migliogiorni
LOL Air Force 1's lover here too!

Re: What's the Big Deal with APRs?

Anonymous — Thu, 04 Oct 2012 16:02:26 GMT

In my opnion, you should avoid carrying a balance as much as possible. It may only be $4, but that is $4 you could have saved if you saved up for the clothes. I don't mean to knock you, but $200 for jeans seems silly, especially if you cannot afford them.

That $4 alone would buy you a decent pair of jeans at a thrift store. Maybe even a pair of Buckle jeans.

$200 for a pair of jeans is wasteful. Clearly you cannot afford them. Is it so that you can tell your friends, "Yeah, I have a $70 monthly payment on my jeans."

Re: What's the Big Deal with APRs?

Anonymous — Thu, 04 Oct 2012 16:04:07 GMT

@jsickz32 wrote:
@migliogiorni
LOL Air Force 1's lover here too!

I really don't see anything wrong with OP spending habit. Every person is different on what they consider is worth buying. For some it's furniture, clothing, cars or big homes. I think it okay to buy high ticket item as long as one can pay them back. I would not spend that much on a pair of jean but sure can on a pair of shoes

LOL Air Force 1's lover here too!!

Re: What's the Big Deal with APRs?

navigatethis12 — Thu, 04 Oct 2012 17:10:58 GMT

I was not really saying $200 is too much. I know everyone spends different amounts on everything. What I was mainly pointing out is that I do not believe you should buy something without the funds to cover it if you need to. One missed payment and you have a late fee and higher interest and that $4 turns into a bit more. I am just cheap with everything and the very idea of having to pay interest is sour to me. There are many cards with zero interest for a period of time that you could use to buy things. You should just always be able to pay off whatever you charge to a card.

I also understand wanting to save cash reserves and just use a card, but in my opinion I would rather use the cash. You should have at least a years worth saved up so a new appliance should be small change. Everyone manages money differently though. If I want something I revist the idea many times and sometimes I forget all about it and that is money saved.

Re: What's the Big Deal with APRs?

compassion101 — Thu, 04 Oct 2012 19:45:50 GMT

A little bit of interest is not a big deal if you decide it is worth it and you can afford it. There are many circumstances in business and a few in personal life where you might need to carry a balance when short on cashflow. While I agree it seems wasteful to spend $200 on pants, if you feel it's needed then why should I care. I once financed minutes on a phone chat line.

I would say though to be a bit careful about getting into a spot in life where you are financing jeans and similar items on a regular basis. It will end badly.

Re: What's the Big Deal with APRs?

bobebob — Thu, 04 Oct 2012 20:37:12 GMT

@laboi_22 wrote:

. . . . . . .

I knew that my statement period had just begun. I wanted some jeans that were going to cost me $204 with tax. I purchased them:

Before the statement due date (about 25-30 days) I went in store and made a payment of $65 and some change so that I now owe an even $139. I then took out my handy interest calc and here is my payment plan:

month 1: $71,72
month 2: $71.72

I will have paid a total of $4.44 in interest for making 3 monthly payments that are easy to pay right in store, and now I have a pair of amazing jeans to boot! So $4.44 is not that much for me (based on 24.99% APR).

I just have a small point to bring up on the interest you will pay in this case.

If you don't pay a balance off completely before the due date on the statement, the grace period goes out the window. I.E. you will pay a finance charge on the entire purchase, not just the part you didn't pay off completely before the due date.

Here's about how it should go down:

$204.00 purchase.

$65 payment before due date. But since it isn't paid in full, there will be interest charges on the whole amount of $4.24 appearing on your next month's bill.

Leaving a balance of $143.24

you could then pay this off in 2 equal payments of about $74

Interest for the second month on the $143.24 balance would be about $2.98 minus the $74 payment leaves a balance of $72.22

When you pay this $72.22 off you will still see another finance charge of $1.50 on the next month's bill.

The total interest would be about $8.72

Not the end of the world, but it is about twice what you had estimated.

You have to pay the amount down prior to the statement posting not to be charged interest on it if you will be carrying a balance past your statement's due date.

Re: What's the Big Deal with APRs?

AF_23 — Thu, 04 Oct 2012 20:44:34 GMT

Not a huge deal, but rewards cards in particular that people love on here are simly inflated with rates that can be questionable. Not to mention some prime cards throwing around a 21% APR seems almost laughable.

B/T's are a decent way to combant it if you have lenders who offer attractive rates so as long as you arent pyramiding debt

Re: What's the Big Deal with APRs?

laboi_22 — Thu, 04 Oct 2012 21:10:07 GMT

I don't think it's a problem to buy an expensive pair of designer jeans. That's what I like to spend my money on. My bills are all paid. My partner and I make 100K+ together. I make 90 alone. I like to finance sometimes because we have a good bit of bills and we enjoy doing things that sucks up money. I have more than enough money to pay off right away, but if I know I'm only going to be making 3 total payments and racking up $4.00 in interest in a store that I'm going to be in every month anyway it just make sense to me. I may even pay it off earlier. I just like to use my left over gas money to buy my fancy jeans. My company pays my milage but I have a small car that doesn't use nearly what it pays me so I end up with an extra $200 a month in gas money that I either save or spend on jeans. I don't get a check every month for it though it just depends on when I submit my expenses so I thought everytime I get my gas check, I'll pay off my jeans. It only costs me $4.00. Crazy but hey it works for me!

Re: What's the Big Deal with APRs?

Jlu — Thu, 04 Oct 2012 21:47:15 GMT

Imagine if instead of flushing $200/mo on jeans you took the money and invested it? You could have over $30k saved in less than 10 years. But instead you will have a pile out-of-style jeans - since metal suits will be all the rage in the year 2020.