I mean, the price of the product is the same, I’m taking a loan for the duration of the credit but paying no interest?
What’s the catch?
I can keep my money making a bit of interest instead of giving it right away and without increasing the price of what I was already planning to buy. When or why wouldn’t I choose 0% credits?
Retailer who offers one of those 0% financing schemes, here. TL;DR: It’s from processing fees paid by the retailer and punitive interest after the 0% promotional period lapses.
The lender makes money in two ways. One, a percentage fee is charged on the financed amount, but it’s not paid by the customer. It’s paid by the retailer. For us it is a little under 2%, similar to the fees most credit card processors charge. So as soon as you make your purchase, the bank instantly skims 1-point-whatever percent off the top. You don’t see this, though. It affects the retailer’s bottom line, not yours.
Two, the 0% interest rate is a promotion which provides specified limited time in which to pay off the balance. If you do not pay the outstanding balance in full by the end of the promotional term, the bank whacks you for a monstrous interest rate on the entire original transaction amount – not just the remaining outstanding balance. In our case this is damn near 30%. Look carefully at the promotional signage and literature. It will always say “0% INTEREST FINANCING!!! for 12 months.” That 12 months is important. That’s the end of the promotional terms, after which you pay aforementioned buttload of interest.
And then, the minimum payments on the bills they send you are obviously deliberately structured to trick you into failing to pay the entirety of the balance by the deadline at the end of the promotional period.
If you’re talking 0% introductory rates for general purpose credit cards, the answer is right there in the name. Those are introductory rates designed to entice you into signing up and using the card, but they’re never permanent. Eventually that introductory rate will expire and you will be left with an interest bearing credit card. Possibly a lot of interest. Even if you pay your bill 100% on time every month without fail, the bank still makes money in percentages and processing fees taken on every transaction from every single retailer where you’ve swiped that card. The bank issuing the credit card can continue to comfortably make money even if no one pays any interest, ever.
Oh, I was only aware of credits where the lender sets the amount to be the total exactly spread over the period, those are the only ones I’ve seen and taken, so each month I get a charge for the amount needed to keep up with the credit.
For the rest then it makes sense how they make money, since I’ve had credit cards which don’t show or at the very least hide the amount to not pay interest and only tell you the minimum payment.
They make money on the penalty default rate. They know what the average rate of default is, and they know how many people they plan to sign up. On average they make money. The 0% is to draw large numbers of customers in knowing that some percentage will default and of that percentage they will be able to collect on yet another percentage. This is why the default rate is like 24.99% or something silly like that.
This is part of it.
But also you almost always only get those offers on transaction where they still make comfortable profit on the product if you just treat the interest they’re subsidizing as a discount on the product.
Yes they’re still charging the merchant fees on your purchase which is often overlooked.
I wasn’t thinking credit cards. Those promotional offers are just customer acquisition. They’re short term before they charge the normal interest rates.
I was thinking more like car dealers offering 0% APR, which is really just some discount off the sticker price.
It’s often zero interest and zero payments required for 6 months or a year or whatever. The trick is that if you don’t pay it off within that time, then the interest from the whole period accrues.
In addition to what everyone else in this thread has already covered, the credit card issuers benefit from you having that card in your wallet because they charge the merchant for every transaction. So you’re having the merchant pay the credit card company with every swipe, in exchange for whatever benefits the card provides to you.
This is why gas is sometimes cheaper when you use cash or the gas station’s own card. We pay the credit card companies to use their card on these transactions.
Partially the reason. I’ve seen between $0.10 and $0.30 per gallon more for credit cards even though merchants only charge <5%. At $4.00/gal, 5% is only $0.02 that they’re paying the credit card companies so they’re making extra profit off that too.
I’m guessing this is why lots of merchants don’t accept American Express? Probably have the highest rates hitting the merchants
You get what you pay for, though. I’ve had nothing but good experiences as an Amex card holder. You need to live a lifestyle that gives you opportunities to use the system, but you can offset the cost of even the Platinum charge card if you sign up for, and then use, all the perks.
For how I use it, I’d say it pays for itself.
edit to add: their customer service is always stellar, and their disputes department are really effective.
^^ This guy got chased out of the temple by a furious Jesus Christ /s
