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Understanding Promotional Financing

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Established Member

Understanding Promotional Financing

I've never done promotional financing before because I never had a reason to. I opened up an Amazon card to purchase some big items for Christmas this year (approx $500). I received the 6 months promotional financing. I know I have to pay it off within 6 months to avoid the accrued interest. I figured as long as they get the $500 in payments by June 22nd (the date promotion expires), I should be okay. 

 

However, now I'm getting confused because since Christmas, I've used the card a couple of times. I paid off about $400 of the balance, but added on approx. another $200+. When I check my statement, it says one item is paid off, partial balance of the other items 3 items. I'm wondering how does the payment work towards the promotional items? Please let me know in layman's terms because it's still early and I haven't had enough coffee.

 

Basically, I've only done 2 payments since Christmas and have another due on the 13th of THIS month, March. 1st payment was $85 because I figured 85 * 6 = $500. But since 1st payment, I bought more things. So 2nd payment was ~$380. But I still owe on promotional items - $205. 

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Frequent Contributor

Re: Understanding Promotional Financing

Promotional financing is generally designed to maximize the likelihood that you will eventually pay interest - baseically think of it as a sweetener to get you to buy more than you normally would, with the hope that most consumers aren't savvy enough to avoid the interest.

 

So, buried in the fine print, you'll likely find language that says something along the lines of "How we apply payments - payments are applied to the highest-interest debt first, then lower-interest debt." This means that since your promo purchases were technically bought at 0% interest, your money goes against them last - meaning that if you do purchase other things (as you have), and then make a payment, you'll actually be paying off the newer purchases first.

 

So, basically, if I were you, I'd just make sure that your total current balance is 0 by the end of the promo period. Or at least, that there is a day on which your balance is 0 ahead of the promo period, so that you will be certain your whole promo balance has been paid off before interest starts accruing. If your promo period ends June 22, get it to 0 by June 1 for example, and then if you do make any other purchases between June 1 and June 22, the normal interest rules (and grace period) will apply. If you need right up until June 22 to pay it off fully, I'd recommend being careful about adding any charges that you can't pay in full by the 22nd, since that might result in triggering significant interest charges (since their language could allow them to charge you interest on the full 500 if any of it remains outstanding by the 22nd).

 

Hope this helps, let me know if you have any other questions.

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Re: Understanding Promotional Financing


@Jamex wrote:

Promotional financing is generally designed to maximize the likelihood that you will eventually pay interest - baseically think of it as a sweetener to get you to buy more than you normally would, with the hope that most consumers aren't savvy enough to avoid the interest.

 

So, buried in the fine print, you'll likely find language that says something along the lines of "How we apply payments - payments are applied to the highest-interest debt first, then lower-interest debt." This means that since your promo purchases were technically bought at 0% interest, your money goes against them last - meaning that if you do purchase other things (as you have), and then make a payment, you'll actually be paying off the newer purchases first.

 

So, basically, if I were you, I'd just make sure that your total current balance is 0 by the end of the promo period. Or at least, that there is a day on which your balance is 0 ahead of the promo period, so that you will be certain your whole promo balance has been paid off before interest starts accruing. If your promo period ends June 22, get it to 0 by June 1 for example, and then if you do make any other purchases between June 1 and June 22, the normal interest rules (and grace period) will apply. If you need right up until June 22 to pay it off fully, I'd recommend being careful about adding any charges that you can't pay in full by the 22nd, since that might result in triggering significant interest charges (since their language could allow them to charge you interest on the full 500 if any of it remains outstanding by the 22nd).

 

Hope this helps, let me know if you have any other questions.


What Jamex said above in the 2nd paragraph is how banks apply payments to credit cards, including the Amazon store card. The only exception is in the last two billing cycle of the deferred interest promotion. Then, any amount paid over the required minimum payment will first be applied to the expiring deferred interest promotion balance. For me, this is too much to keep track of, so I do what I bolded above: make sure that the balance hits $0 before the end of the promotional period.

 

EDIT: Googled this, and found this in the Amazon discussions. http://www.amazon.com/forum/store%20card?_encoding=UTF8&cdForum=Fx1RJQNXF8J189X&cdThread=Tx35FZG5T2Z...

 

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Message 3 of 8
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Frequent Contributor

Re: Understanding Promotional Financing


@Jamex wrote:

Promotional financing is generally designed to maximize the likelihood that you will eventually pay interest - baseically think of it as a sweetener to get you to buy more than you normally would, with the hope that most consumers aren't savvy enough to avoid the interest.

 

So, buried in the fine print, you'll likely find language that says something along the lines of "How we apply payments - payments are applied to the highest-interest debt first, then lower-interest debt." This means that since your promo purchases were technically bought at 0% interest, your money goes against them last - meaning that if you do purchase other things (as you have), and then make a payment, you'll actually be paying off the newer purchases first.

 

So, basically, if I were you, I'd just make sure that your total current balance is 0 by the end of the promo period. Or at least, that there is a day on which your balance is 0 ahead of the promo period, so that you will be certain your whole promo balance has been paid off before interest starts accruing. If your promo period ends June 22, get it to 0 by June 1 for example, and then if you do make any other purchases between June 1 and June 22, the normal interest rules (and grace period) will apply. If you need right up until June 22 to pay it off fully, I'd recommend being careful about adding any charges that you can't pay in full by the 22nd, since that might result in triggering significant interest charges (since their language could allow them to charge you interest on the full 500 if any of it remains outstanding by the 22nd).

 

Hope this helps, let me know if you have any other questions.


+1

 

Agreed...I went through this with PayPal Credit (Bill Me Later).  All payments were going towards the promotional purchase until I started making other purchases.  Then all my payments would go towards those purchases and not the promotional.

 

However, as I neared the end of the promotional period, payments once again began to apply to the promotional period over non-promotional purchases.

 

I spoke with a Customer Service rep who explained that if other non-promotional charges were made, statements payments would apply to those first since they accrue  interest. But if you are within 1-2 months of the end of your promotional agreement, that amount (the promo amount) will take precedence for applying payments  to assist you in knocking down the promotional balance in time.  Not sure if what the rep stated is only for PayPal Credit though.


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Message 4 of 8
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Senior Contributor

Re: Understanding Promotional Financing


@Jamex wrote:

So, buried in the fine print,


Deifnitely read the terms that come with your cards.

Message 5 of 8
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Established Member

Re: Understanding Promotional Financing

Thank you all! I figured payments were going towards the promotional items until I really looked at my statement and saw that the $380 payment barely dented my $500 promotional purchase. 

 

I never really look at statements in depth, just skim my purchases, interest added if I had a previous balance, payment due and due date. I'm learning!

 

Yes, I will admit I skim the fine print. I just happened to skip over promotional financing mostly because I never go for promotional financing. I work PT so there's no reason for me to spend that much at once and get in trouble with interest and etc. I am getting better at reading the fine print, but it's still mostly jargon to me and I don't have the patience to sit down and figure out what they really mean. Which is precisely why I'm here Smiley Happy  

 

I will keep my eye on the balance of promotional items on my statement so I can see how my payments affect it, especially towards the end of the promotion. At least I have time to ensure I can pay off the card now that I have a better understanding of how it works. Still no finance guru. I think I will stick to science and animals, ha.

 

Message 6 of 8
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Established Contributor

Re: Understanding Promotional Financing

The law was designed to help you avoid paying any interest during the promo period. The law says that anything above the minimum payment due must be applied to the balance with the highest APR, with the exception of the last 2 billing cycles of the promo period where the amounts above the minimum payment will apply towards the promotional balance first.

 

EXAMPLE: Let's say that you bought something for $500 with a 6 month 0% promotion, then the next day (same statement cycle) you bought something for $40 that had no promotion. At statement closing, you have a total of $540 statement balance and the minimum payment due is $25.

 

(1) If you pay just the minimum: The $25 goes towards the promo balance. Since you didn't pay anything towards the $40 purchase that is subject to your regular APR, on the next statement, you will see that they charged you interest for the $40 based on your regular APR. Also on your next statment, assuming you didn't buy anything else, your promo balance drop to $475, and your total balance is $475 + $40 + interst on the $40.

 

(2) To avoid any interest, pay at least $65: If you make a $65 payment, then the $25 minimum amount due goes towards the promo balance and the remaining $40 goes towards the balance with the highest APR (the $40 item that you bought). On the next statement, there is no interest charged, and you are left with $475 in promotional balance. If you only make a $46 payment, then $25 goes towards the promo balance and $21 goes towards the $40 non-promo balance, and you will be charged interest for the remaining $19 of the non-promo balance.

 

THE EXCEPTION: On the 4th billing cycle, you have $100 promo balance left, but you bought something for $50 (no promo) so the statement balance is $150. You make a $75 payment thinking it will cover the minimum payment due plus the $50 in new charges. Nope. Since the payment will be posted on the 5th billing cycle, all the payment will go towards the promo balance, and you will be charged interest for the $50 new purchase.

 

This gets more complicated if you make multiple promotional purchase that overlap.

I wish banks will allow you to allocated exactly which balance the payments will go toward.

 

 

EDIT: This was my 100th post. Probably my longest too.

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FICO 08 (10/16/2020): EQ 676 EX 659 TU 653
Message 7 of 8
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Re: Understanding Promotional Financing

I get the gist of your post... except I made so many purchases on the next two billing cycles since the initial promo purchase, it's getting confusing when I try to apply what you're saying to my situation.

 

After looking around on my account online, I found that I do have the option of managing how my payments are applied:

 

1. Standard Allocation:

Payment received in excess of minimum payment amount due will be applied to non-promotional balances before deferred interest promotional balances except in the last two months of a deferred interest promotion. In the last two months of a deferred interest promotion, the payment amount in excess of the minimum payment due will be applied to the deferred interest promotion(s) that are in the month of expiration and/or the month prior to expiration.
2. Allocate Payment to Deferred Interest Promotional Balances First:

Any payment you make (including the required minimum payment due and any additional amounts) will be applied to the deferred interest promotional balance before the non-promotional balance.
3. Allocate Payment to Non-Promotional Balances First:

Any payment you make (including the required minimum payment due and any additional amounts) will be applied to the non-promotional balance before the deferred interest promotional balance. Please note, even with this setting, during a billing period in which a deferred interest promotion expires, if your payment is enough to pay off the expiring promotion, your payment will be applied to the expiring promotion first before the non-promotional and other balances on your account.

 

Obviously, it was set up as option 1: Standard Allocation. If I were to change it to option 2, would I be right in assuming that I just need to make $205 in payments for my initial promo to be paid off, then any payment after would be applied to the non-promo balance? I could just change it back to option 1 after I pay off my promo balance.

 

I chose option 2 for now, and I'm making my payment today or tomorrow since it's due on the 13th, but Amazon takes a while to go through. I will check to see how it affects the balances of my promo items afterwards to get a better understanding. 

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