What’s the catch behind their no interest credit card?
We all know 0% promotions from department stores and other retailers are a dime a dozen. They usually come with a “deferred interest” catch, where if you don’t pay off the card in full within an allotted amount of time, you get whipped with interest charges retroactively.
When I saw the application for the Von Maur card, I assumed it must be the same type of gimmick. Much to my surprise, it’s not!
Here’s how it works
When they say 0% interest, they’re not lying. I combed over the fine print and their credit card does not use deferred interest. There are no fees, either.
So what’s the catch? If there’s no interest, then why would anyone care about paying off their bill?
As it turns out, the only catch is that the minimum payments due each month are relatively high (compared to normal bank cards). With credit card from Von Maur your minimum payments will be as follows:
Say your balance was $500. According to the chart, that falls under the $476 to $575 bracket and therefore you payment due would be $105.
If you run and review the numbers, you will see that with any given amount, you typically will owe either 1/4 to 1/5 of that current debt as the minimum.
You may be thinking “okay then that means if I make the minimum, I will pay it off in 4 or 5 months.”
That’s not necessarily true.
You see the minimum due becomes smaller as the debt becomes smaller. This means if you pay the minimum, you will be paying it off much longer than 4 or 5 months. Here’s the math to prove it:
- 1st month: $105 min. on $500 balance = $395 left
- 2nd month: $85 min. on $395 balance = $310 left
- 3rd month: $65 min. on $310 balance = $245 left
- 4th month: $55 min. on $245 balance = $190 left
- 5th month: $45 min. on $190 balance = $145 left
- 6th month: $35 min. on $145 balance = $110 left
- 7th month: $25 min. on $110 balance = $90 left
- 8th month: $25 min. on $90 balance = $65 left
- 9th month: $25 min. on $65 balance = $40 left
- 10th month: $25 min. on $40 balance = $15 left
- 11th month: $15 = last payment left
The bottom line: it may take longer than you think
It’s true that you won’t be charged interest on the Von Maur credit card. However due to the way the payment chart works, as with other cards, it can be easy to lose track of how much your spending and how long it will take to pay down, if you only pay the minimum each month.
The lesson? Even interest free can be a bad idea, if it leads to overspending. Since there’s no rewards program on this card, you’re also missing out on earning cash back/points/miles.
If you are the type of person who prefers to stay out of debt by paying your card in full each month, then check out this card that gives 3% cash back at select US department stores.