Is 0% Apr a Scam?

Before the subprime mortgage crisis, you were probably receiving weekly credit card applications in the mail offering you 0% APR for a specific time. Since then, some banks have stopped sending these offers, but they are still out there. Although a 0% APR may appear attractive on its face, it is a scam that credit card companies and mortgage lenders use to entice credit card holders. According to the Federal Reserve, "...any initial information you receive about mortgages probably will come from advertisements, mail, phone, and door-to-door solicitations from builders, real estate brokers, mortgage brokers, and lenders. Although this information can be helpful, keep in mind that these are marketing materials--the ads and mailings are designed to make the mortgage look as attractive as possible. These advertisements may play up low initial interest rates and monthly payments, without emphasizing that those rates and payments could increase substantially later. So get all the facts and make sure any offers you consider meet your financial needs." If you received a credit card application with a 0% APR offer in the mail, shred it! If anyone calls you about information that seems too good to be true, it absolutely is! Hang up! Also keep in mind that the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 went into effect in February 2010, imposing specific rules and regulations banks must follow as it relates to credit card holders. But, this does not mean that the predatory lending practices have completely stopped. Don't fall for the 0% APR scam or any other scam that usually targets seniors and young adults!

How Does a 0% APR Offer Work?

One of the most important things to note is that while an offer may say you're pre-approved, they're still going to look at your credit report and decide if you're really worthy of that 0%. If you apply and they don't like your credit score, they'll push through your application at a higher interest rate instead. You could end up with a card at 25% instead of 0%. Now you have to cancel that card. Meanwhile, your credit score has taken a ding from the hard credit inquiry and new account opening. Say you apply anyway and you manage to get the 0% APR, what you don't know is that there are catches. Say you use that deal to buy brand new appliances. There's fine print that says you get the low APR until a specific day. If you haven't paid off everything during that time, the interest is retroactive. The bank will go back in time and look at how much you haven't paid off and charge the interest going back to the date you applied for the card. Another catch is rescinding the deal if you have just one payment that's two minutes late. Say you tried to pay but the bank's website was down. You end up paying just a tiny bit late. You lose the low-interest rate and now have to deal with the retroactive interest.

Take Time and Do Your Own Research

Always read the fine print. It may not be the most scintillating reading material, but it's important to read and understand the terms before you sign. You don't want to sign up for a loan or credit card offer and find out you fell for an offer that seemed too good to be true and actually was just another scammy deal. Check out online reviews of a company, too. You'll learn a lot about a company's customer support and trustworthiness when you read reviews. Remember that people are more likely to leave a bad review than a good one. If you're seeing the same complaint with dozens of people, however, it's likely to be true.