I received an offer from Visa this week for a free Dell Laptop that they say is valued at $850. Naturally I’m skeptical, but before I threw the ad in the trash I looked over it to see what you had to do to get the “free” computer.
To qualify for your “free” computer you must transfer a balance of $5000 to the new card and maintain a balance of $3,500 for 18 months. If you don’t have $5,000 on another card to transfer you can take out upto $2,500 in cash advances to make up the difference. This means you need to have at least $2,500 on another card in order to transfer it to the new card.
So lets say you have $2,500 on an existing credit card and you transfer that to the new visa. Then you take out $2,500 as a cash advance in order to meet the requirements.
That means for the first month you have a $2,500 loan at 9.99% and a $2,500 loan at 19.99% (the current variable interest rates for transfers and cash withdrawls respectively). The terms say that you don’t have to pay any additional fee on your additional cash withdrawl. So in the first month your finance charges would be $62.45.
Now lets say you pay off the $1,500 in order to keep your finance charges at the minimum. You might think that this would be applied to the $2,500 that you took as a cash advance, but that isn’t how it works. Your payment will apply to the lowest interest rate debt first, so you will now be left with $2,500 at 19.99% and $1,000 at 9.99%. You have to maintain this balance for the next 18 months or you are charged a $600 fee.
Your total fees each month (assuming you maintain this minimum balance) would be $49.97. So over the next 17 month you’ll pay $849.50, plus the original month fee of $62.45 so the total you’ll pay for the computer is:
$911.95
So the $850 computer ends up costing you over $900. Not quite as good of deal as it originally sounded. In addition the rates are variable (they are based on prime rate) and right now they are probably at the lowest they will ever be. It is very likely that the $850 computer will end up costing well over $1,000 by the end.
If you need a computer, you’ll be better of to just purchase it directly.
Update:
Thanks Digg for linking to this post. digg it
Several people have pointed out that if you already are in debt this might not be as bad of deal. My numbers are based on someone who isn’t already in debt, so you’ll need to do your own calculation if you have a bunch of credit card debt already.
Personally I think if you are already in debt you should look at getting a card that will let you transfer your balance to it with 0% for the first year. Trying to pay interest and then get a bonus back of a computer doesn’t seem to make sense especially when you consider that you have to pay taxes on the money you earn to pay the interest to get your free computer.
Some people are still going to go for offers like these, but hey, that is why the companies offer them. They know that some people will still think it is a good deal.
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