Isn't 0% balance transfer really 3.3% balance transfer?

[SouthJamaica]

If you get a $10k balance transfer with 0% interest for a year, but pay a 3% balance transfer fee,

by my calculations you're really paying 3.3%, not 0%, interest.

Here's how I figure it:

1. You transfer 10k but immediately pay 300, so you're really only getting 9700.

2. You make the minimum payments of 100 mo. for a year, so your average balance is actually 9100.

3. $300 is 3.3% of  $9100.

Am I wrong?

[Anonymous]

The $300 balance transfer fee is in addition to the $10k it doesn't come out of the 10k, basically that's like paying for a fee with some debt, so trying cancel out a negative with another negative. You're basically paying 3% interest cuz of the fee, so it's $10,300 not $9,700

[Brian_Earl_Spilner]

It's less than my average APR of 23% so it's still a win for me.

[Anonymous]

There are 0 percent transfer fee 0 percent offers as well.  Got that from NFCU.  Amex Everyday card has 0 percent transfer fees and 0 percent interest for 15 months.  Also comes with 10,000 Amex MR points.  Bank Americard offers 15 months 0 interest with 0 transfer fees.

[mongstradamus]

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@Anonymous wrote:

There are 0 percent transfer fee 0 percent offers as well.  Got that from NFCU.  Amex Everyday card has 0 percent transfer fees and 0 percent interest for 15 months.  Also comes with 10,000 Amex MR points.  Bank Americard offers 15 months 0 interest with 0 transfer fees.

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There is also both chase biz cards, cash + and unlimited have 50k MR and BT offers i believe. Those are really nice offers 

[Remedios]

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@Anonymous wrote:

There are 0 percent transfer fee 0 percent offers as well.  Got that from NFCU.  Amex Everyday card has 0 percent transfer fees and 0 percent interest for 15 months.  Also comes with 10,000 Amex MR points.  Bank Americard offers 15 months 0 interest with 0 transfer fees.

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In order to get 0 fee on Everyday, it must be requested within 60 days of opening account 

After that, there is a BT fee. 

[NRB525]

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@SouthJamaica wrote:

If you get a $10k balance transfer with 0% interest for a year, but pay a 3% balance transfer fee,

by my calculations you're really paying 3.3%, not 0%, interest.

Here's how I figure it:

1. You transfer 10k but immediately pay 300, so you're really only getting 9700.

2. You make the minimum payments of 100 mo. for a year, so your average balance is actually 9100.

3. $300 is 3.3% of  $9100.

Am I wrong?

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You pay the 3% fee, $300 in this example, up front, so that is your known cost of financing. How that actually works out on an annualized basis, depends on how you pay it back, but the timing you choose for payments are just handwaving. You paid $300 for the use of the funds, full stop.

If you let the charge rest on a 17.99 APR card, during this time you will be paying Daily Compounded Interest, which works out to about 19.70% APR realized rate.

If you take the BT fee, pay $300, then pay off the entire amount in three months, then you could argue that the APR is 4x 3% or 12%, but you still only paid $300 out of pocket.

That fast payoff scenario is what makes the Discover $0 fee 4.99% BT offer attractive. You pay a small percentage of interest per month, so on a relatively short BT time frame, you pay little interest.

[Anonymous]

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@Remedios wrote:

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@Anonymous wrote:

There are 0 percent transfer fee 0 percent offers as well.  Got that from NFCU.  Amex Everyday card has 0 percent transfer fees and 0 percent interest for 15 months.  Also comes with 10,000 Amex MR points.  Bank Americard offers 15 months 0 interest with 0 transfer fees.

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In order to get 0 fee on Everyday, it must be requested within 60 days of opening account 

After that, there is a BT fee. 

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Cancel the card and get a new one in a month. Problem solved. 

[Anonymous]

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@SouthJamaica wrote:

If you get a $10k balance transfer with 0% interest for a year, but pay a 3% balance transfer fee,

by my calculations you're really paying 3.3%, not 0%, interest.

Here's how I figure it:

1. You transfer 10k but immediately pay 300, so you're really only getting 9700.

2. You make the minimum payments of 100 mo. for a year, so your average balance is actually 9100.

3. $300 is 3.3% of  $9100.

Am I wrong?

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You are right. But it is only an approximation:

1. The minimum payment is usually a percentage of the outstanding balance (in your example 1%) and will go slightly down each month.
2. Interest is usually compounded monthly so basing the interest rate on the average balance will be slightly off.
3. Many balance transfer offers let you add the fee to the balance, and so the fee does not need to be paid upfront.

So out of curiosity I used a spread sheet to get a better estimate:

1. If the fee needs to be paid upfront, the interest rate is 3.22%.
2. If the fee can be added to the balance, the interest rate is 3.13%.

[SouthJamaica]

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@Anonymous wrote:
The $300 balance transfer fee is in addition to the $10k it doesn't come out of the 10k, basically that's like paying for a fee with some debt, so trying cancel out a negative with another negative. You're basically paying 3% interest cuz of the fee, so it's $10,300 not $9,700

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If someone lends you 10,000 in exchange for an immediate payment of 300, they've lent you 9700, not 10,000