0% APY cards - what's the catch?

[ender]

We have a $20k or so payment to a contractor which they seem to be willing to let us put put on a credit card.

In thinking about this, I'm wondering if I should just apply for a 0% card for X months and let the purchase sit on it, while keeping the $ in 5% hysa/mmf.

It seems like 5% on $20k is a pretty easy $1k interest if the card lets me keep it on it for a year.

Is there a reason not to do this?  What am I missing other than hassle factor? Also what card should I get if this is a good idea :)

[oldladystache]

They are hoping that after x months you won't have the money available to pay off the balance. In many cases they will be right.

Some cards will even give you a nice bonus if you spend a certain amount in the first couple months, so look around for the best offer.

[ender]

Some cards will even give you a nice bonus if you spend a certain amount in the first couple months, so look around for the best offer.

how many cards that are 0% APR also offer bonuses? Maybe that's the way to go.

[Dave1442397]

I did that. I put a $10k purchase on an AMEX card with 0% interest for twelve months, and a 6% cashback bonus ($600). That was a good deal!

[sonofsven]

Some cards will even give you a nice bonus if you spend a certain amount in the first couple months, so look around for the best offer.

how many cards that are 0% APR also offer bonuses? Maybe that's the way to go.

Lots. That's definitely the way to go.
Check Doctor Of Credit.

[2Birds1Stone]

Some cards will even give you a nice bonus if you spend a certain amount in the first couple months, so look around for the best offer.

how many cards that are 0% APR also offer bonuses? Maybe that's the way to go.

Some cards will have a bonus that is more lucrative than the $1k in interest you would earn on $20k. Can you split the payment on multiple cards? If so, you can hit multiple sign up bonuses in one shot, could be worth $3-4k potentially.

[Rosy]

No catch other than the initial hassle of setting up a new card.
Be aware that some cards require a mo min pmt regardless - most don't but I got caught in one that did, while I was out of the country for three months, ugh.

Also, it is possible that they may not give you the entire 20K+ limit to start off with. If you just happen to see two good card offers or one with an excellent bonus but a high spend requirement it may well be worth it.

doctorofcredit.com is a great place to check to avoid any pitfalls since both the card review and the comments will address the fine print.
They also have a tab for the best credit card offers of the month - then just click on their review.

[Just_Me]

We had our sewer line replaced and we signed up for a credit card at 0% for 12 months through the contractor when it was time to pay. The total financed was about $15k and the monthly minimum payments are ~$500/mo.

Insurance covered almost all past the deductible so it was a no brainer to let that cash earn interest while paying the monthly minimum.

The promotional apr is set to expire in April 2024 and currently ~$2k interest deferred (~30% apr!!). I have a one time payment scheduled to send in March 2024 to pay the estimated remaining balance. 11/12 months of sweet interest is good enough for me.

The contractor said they get a small kick back, and obviously the bank reaps the benefits if you forget. That's the catch.

[seattlecyclone]

No catch really. I'm currently filling up a Wells Fargo Reflect card (no sign-up bonus, but you get 21 months interest-free and that long of a free period is worth something too). Some risks include:
1) You may not be able to get the card approved and in your hands before your contractor wants their payment.
2) You still need to pay a monthly minimum payment. My card's minimum payment is MAX($25, 1% of statement balance). A complete cost/benefit analysis will include the fact that you won't be able to let the entire balance ride for the whole time without making additional purchases.
3) You really, really need to be able to pay off the entire amount by the due date. Even one month of interest paid will likely negate the entire benefit of doing this. Not a great plan for people who have a habit of missing deadlines. Do whatever you need to do in order to make that final payment go through in time.
4) You'll likely need to pay tax on the interest you earn on your savings account. Discount the interest rate by your tax bracket to get a sense for how much you'll really earn.
5) Your savings account interest rate could go down in the next year. Consider purchasing a CD to mitigate this risk.
6) You only get the full X months of interest arbitrage for purchases you're able to put on the card right away. The value of putting further purchases on the card decreases with every passing month.
7) When all is said and done the value of the after-tax interest you'll earn on the card could end up being less than the tax-free sign-up bonus you'd receive from putting that same expense on a different new credit card.

[Morning Glory]

I have heard of some that charge retroactive interest on the entire original amount if you aren't paid in full by the end of the 0% period.  I don't know if that's legal any more but it was certainly a thing at one time. I've always shied away from them as seeming slightly predatory and gone for the ones with sign-up bonuses instead.

[Just_Me]

I have heard of some that charge retroactive interest on the entire original amount if you aren't paid in full by the end of the 0% period.  I don't know if that's legal any more but it was certainly a thing at one time. I've always shied away from them as seeming slightly predatory and gone for the ones with sign-up bonuses instead.

My statement has a column for deferred interest, monthly and total, and it says in every paragraph to avoid paying deferred interest pay in full by end of special terms period otherwise it will be applied to account balance.

This is why I have a one time payment scheduled set up to pay the entire balance a month before the special period ends... No surprises, especially if something happens to me between then and now.

Predatory for sure.

[Dicey]

Don't these cards charge a balance transfer fee of 2-3%?

[seattlecyclone]

Don't these cards charge a balance transfer fee of 2-3%?

If you're actually doing a balance transfer, yes. :-)

There are many that offer 0% interest on purchases for the first year or so, with no extra fees tacked on. The OP is well-positioned to take maximum advantage of one of these deals with a $20k purchase already planned.

[Zamboni]

The probably do, but (I think) OP is asking about using the card directly for a large purchase which would not incur the fee.

I had friends do this with guaranteed student loans in the 80's. Took out the loans which accrue no interest while enrolled full time, put the money in CD's, and collected the interest while they had the 0% rates on the loans. I'm assuming that they did the math on the loan origination fees, etc. to make sure it was still a good deal, sort of like you'd need to do if the CC has an annual fee that you'd have to take into account in the math. It works as long as you are very disciplined. The biggest reason not to do this is that you might make a mistake and then get penalized by the CC company. It's basically dollar lending arbitrage that will be there hanging over your head the whole time. If that doesn't stress you out, then go for it.

[catccc]

BT fees are usually 3%z. Still could be worth doing a BT depending on the length of the promo and what your offesetting assets are doing.

We financed our solar project with 0% purchase cards, but our selected provider wouldn’t take the credit card without charging a convenience fee.  So we planned ahead and started putting everyday purchases on the card a few months in advance of the project, building up the cash to pay for the solar as it became due.  It has worked out really well!

Like other have said, just make sure you have everything set so there are no surprises!

[smisk]

Thinking of doing this because I'm in the middle of moving and have a lot of expenses piling up, while not having much easily available cash until my house gets sold. If I'm gonna carry a balance on a card it might as well be 0%. Wouldn't carrying it for the entire year hit your credit score though?

Edit: Thanks for the doctor of credit recommendation! Found a Fidelity card with no yearly fee and 0% on purchases and balance transfers for 12 months. No fee on balance transfers either. This will let me pay down my other credit cards without selling investments, then I'll pay it off in a couple months when the house is sold. Even got a $25k credit limit somehow lol.

[seattlecyclone]

Thinking of doing this because I'm in the middle of moving and have a lot of expenses piling up, while not having much easily available cash until my house gets sold. If I'm gonna carry a balance on a card it might as well be 0%. Wouldn't carrying it for the entire year hit your credit score though?

Sure, slightly. Part of the credit score formula involves what percentage of your available credit is used, so that piece would take a bit of a hit. There's a lot more to it though: total credit lines, length of credit history, history of making payments on time, etc. Anyway it sounds like you've already purchased a new home and are looking for some temporary liquidity until you sell the old one, so the biggest reason for caring about a high credit score (applying for a new mortgage) seems to be past.

[ender]

Thinking of doing this because I'm in the middle of moving and have a lot of expenses piling up, while not having much easily available cash until my house gets sold. If I'm gonna carry a balance on a card it might as well be 0%. Wouldn't carrying it for the entire year hit your credit score though?

Edit: Thanks for the doctor of credit recommendation! Found a Fidelity card with no yearly fee and 0% on purchases and balance transfers for 12 months. No fee on balance transfers either. This will let me pay down my other credit cards without selling investments, then I'll pay it off in a couple months when the house is sold. Even got a $25k credit limit somehow lol.

Sweet I did that one as well just now - I've debated doing that card anyways and didn't realize it had a 12 month 0 APY.

I also got a $25k limit hah.

And it comes with $150 bonus and 2% cash back? Perfect.

Receive 15,000 Bonus Points—which equals $150 cash back, when deposited into an eligible Fidelity account—after you make at least $1,500 in eligible net purchases within the first 90 days of account opening. Limited time offer.

[sonofsven]

Don't these cards charge a balance transfer fee of 2-3%?

Some are even 5% now.

[halfling]

"Stoozing" sounds so cool, lol. Wish we had cooler names for other strategies. They might catch on easier.

[AnotherEngineer]

Thanks for everyone's take on this. It is fun to adapt new strategies to this recent dynamic of higher interest rates. It sounded risky when I first heard about it, but the more I think about it, if stuff were to really hit the fan with a big balance:

• it should just be your normal spending that you would have already paid, so having it invested instead gives flexibility until the payment comes due
• it is analogous to investing instead of paying down your mortgage (just with higher rate and a balloon interest payment)
• credit cards are likely your 2nd, 3rd, or 4th emergency fund anyway. if things really went sideways, you could double down and get another 0% card or pay finance charges on other cards to pay off the 0% coming due
• the biggest factor for me is P2 and I are both at 5/24 for another 9 months and we recently did all the best cards, so our usual signup bonus options are limited now. This way, I'm getting near my churning ROI but with fewer new cards and despite those cards not being available to us. (Long term solution: business cards)
• we are also cash flowing grad school, surgeries, and a major renovation, so a little float current hurt right? (DANGER! DANGER!)

Go Curry Cracker covers it in his latest post for a complete analysis, including the cash back maximization: https://www.gocurrycracker.com/playing-the-spread-with-0-credit-card-offers/

[Catbert]

Thinking of doing this because I'm in the middle of moving and have a lot of expenses piling up, while not having much easily available cash until my house gets sold. If I'm gonna carry a balance on a card it might as well be 0%. Wouldn't carrying it for the entire year hit your credit score though?

Sure, slightly. Part of the credit score formula involves what percentage of your available credit is used, so that piece would take a bit of a hit. There's a lot more to it though: total credit lines, length of credit history, history of making payments on time, etc. Anyway it sounds like you've already purchased a new home and are looking for some temporary liquidity until you sell the old one, so the biggest reason for caring about a high credit score (applying for a new mortgage) seems to be past.

You may get a bigger hit than you expect.  A couple of years ago I paid lump sum for a very expensive vacation using up most of my credit limit on one card (21K charge on 25K credit limit).  My overall credit utilization was still under 10% however it was 85% on that one card.  My FICO dropped 20 points!  It went right  back up the following month when I paid off the charge.  I also just recently got the Fidelity card and immediately charged 27K on a 35K credit limit.  I won't know for awhile what the impact is.  My credit score is very high so even dropping 20 points I was over 800 so nbd.