Credit Cards with Promotional Rate Offers Here to Stay
Guest: Bikshu
Credit Expert (100+ Posts)
Post subject: Credit Cards with Promotional Rate Offers Here to Stay
Posted: Sat Sep 23, 2006 2:46 am
crybaby wrote:
I doubt neither your knowledge or experience, but it seems to me that it would be in the lenders interest to apply payment to the highest interest debt first so that after I made my fat BT, I could still use the card.
Likewise, issuers could then extend your promo rate duration based on how aggressively you used your remaining available credit. This would induce both loyalty and transactions.
Also, if you are correct (which I have no reason to doubt you), we may see the end of these types of promos in a similar fashion to how CITI is leading the retreat from 5% Cash Back Rewards.
A long time ago, in a land far, far away, banks tried this. People ran up their purchases to 50% of their credit line, then took a cash advance on the other 50% of their credit line at a 0% APR, 1.99% APR, etc. They would then use the cash advance funds to pay of the purchases and... voila... all purchases are now at a 0% or 1.99%. In theory (actually in reality) one could keep doing this ad infinatum on one or two cards and would never have to pay a normal interest rate ever. What happened was that anybody who knew about the loop hole and had sufficient credit lines could literally buy a car without a car loan, or remodel their entire house without a HELOC, go to college without a student loan, etc. And if nobody is ever paying interest, it kind of makes it hard for banks to survive very long. And if banks aren't surviving very long, well we've been down that road before... now we refer to it as The Great Depression. Thus, the banks got together decades ago and came up with a standard banking policy now often referred to as the payment allocation method. Its unfortunate, but its yet another case where a few bad egg consumers took advantage of businesses, the businesses fought back, and now the rest of us have to pay dearly for it. C'est la vie...
As for the demise of the promotional rate: nah, they are here to stay. No one bank can implement a "no promo rate policy" and sustain business, they would immediately lose all market share to those who kept doing promos. It would be like Dell ceasing all advertisments and promotions while still expecting to remain competative with Apple, HP, Sony, etc. Such a step would require all banks to get together and implement the policy at the same time (as happened above). Only with today's laws and regulations, it would be considered collusion and prosecuted under anti-trust and racketeering charges. Nope, its a genie that can never be put back in its bottle. But hey, its also the genie that pays my paycheck so he's one cool cat in my book...
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Guest: Polonius
SENIOR MEMBER (Member for 2 yrs.+)
Posted: Sat Sep 23, 2006 9:15 am
Why not cover purchases under the promo rate as well? Then the card could be used for purchases as well as BTs and the banks would profit from the Interchange fees.
Last October I got a card from Chase that was 0% for both purchases and BTs. (It also offered 5% rewards for gas, groceries and drugstore purchases.) I use the card all the time for those purchases, even though I'm carrying a BT on the card.
_________________
Polonius
"Neither a borrower, nor a lender be; For loan oft loses both itself and friend"
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Guest: Bikshu
Credit Expert (100+ Posts)
Posted: Sat Sep 23, 2006 11:55 am
Its interesting because the bank is going through that exact debate right now, and is testing out both ways.
MBNA chose years ago to take a stand to a degree, and not engage in an all out price war, by offering 0% only on transfers and not on purchases. Again, I suppose the rationalization is that there are simiply too many of us intelligent credit users (read rate surfers) out there who would use it for the 0% purchases, redeem our earned travel or cash, and then simply shuffle off to another bank when it expired. In other words, it would turn out to be too unprofitable. Just out of curiousity Polonius, do you plan to continue using that Chase card for retail once the 0% expires? Do you plan to continue carrying that BT on the account once the BT expires?
BOA, on the other hand, had chosen to participate in the 0% retail pricing war. So the combined bank is now testing out this method on a select small number of new accounts. There is an offer out there, by invitation only, for a BOA (through MBNA) AmEx Rewards card with a 0% on both transfers and purchases for nine months. Some of these cards feature a 3% no max BT fee, some feature a 3% capped BT fee, and some even feature no BT fee whatsoever. No doubt the bank will analyze the results of this offer in terms of its profitibility, or lack thereof, and go from there. So the bank is giving it a shot. Having seen how a few of these account holders are using their cards, however, I can tell you already its not pretty from the bank's perspective. This is anecdotal evidence, of course, and should be judged as such... but most of those accounts I've reviewed are showing negative numbers under the profitibility category in my software (meaning we've lost money on them to date).
Now an interesting compromise would be offering non-0% promos on both BTs and purchases to inactive but existing accounts. Say a 5.99% for 12 months on both transfers and purchases, with the old capped transfer fee formula (as again I would propose we do this on already existing but inactive accounts). I wonder if this would prove more effective in winning existing card holders back to us, while still allowing the bank to at least take a small amount of profit. But alas, I'm unfortunately in no position to offer such as beast...
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Guest: rapjunkie
Credit Expert (100+ Posts)
Posted: Sat Sep 23, 2006 2:47 pm
Bikshu - quick question - so after a month or so when the merger is complete, I'll be able to change my BofA Platinum Visa into one of the MBNA alumni Amex cards? And the terms would all remain the same?
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Credit Expert (100+ Posts)
Post subject: Credit Cards with Promotional Rate Offers Here to Stay
Posted: Sat Sep 23, 2006 2:46 am
crybaby wrote:
I doubt neither your knowledge or experience, but it seems to me that it would be in the lenders interest to apply payment to the highest interest debt first so that after I made my fat BT, I could still use the card.
Likewise, issuers could then extend your promo rate duration based on how aggressively you used your remaining available credit. This would induce both loyalty and transactions.
Also, if you are correct (which I have no reason to doubt you), we may see the end of these types of promos in a similar fashion to how CITI is leading the retreat from 5% Cash Back Rewards.
A long time ago, in a land far, far away, banks tried this. People ran up their purchases to 50% of their credit line, then took a cash advance on the other 50% of their credit line at a 0% APR, 1.99% APR, etc. They would then use the cash advance funds to pay of the purchases and... voila... all purchases are now at a 0% or 1.99%. In theory (actually in reality) one could keep doing this ad infinatum on one or two cards and would never have to pay a normal interest rate ever. What happened was that anybody who knew about the loop hole and had sufficient credit lines could literally buy a car without a car loan, or remodel their entire house without a HELOC, go to college without a student loan, etc. And if nobody is ever paying interest, it kind of makes it hard for banks to survive very long. And if banks aren't surviving very long, well we've been down that road before... now we refer to it as The Great Depression. Thus, the banks got together decades ago and came up with a standard banking policy now often referred to as the payment allocation method. Its unfortunate, but its yet another case where a few bad egg consumers took advantage of businesses, the businesses fought back, and now the rest of us have to pay dearly for it. C'est la vie...
As for the demise of the promotional rate: nah, they are here to stay. No one bank can implement a "no promo rate policy" and sustain business, they would immediately lose all market share to those who kept doing promos. It would be like Dell ceasing all advertisments and promotions while still expecting to remain competative with Apple, HP, Sony, etc. Such a step would require all banks to get together and implement the policy at the same time (as happened above). Only with today's laws and regulations, it would be considered collusion and prosecuted under anti-trust and racketeering charges. Nope, its a genie that can never be put back in its bottle. But hey, its also the genie that pays my paycheck so he's one cool cat in my book...
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Guest: Polonius
SENIOR MEMBER (Member for 2 yrs.+)
Posted: Sat Sep 23, 2006 9:15 am
Why not cover purchases under the promo rate as well? Then the card could be used for purchases as well as BTs and the banks would profit from the Interchange fees.
Last October I got a card from Chase that was 0% for both purchases and BTs. (It also offered 5% rewards for gas, groceries and drugstore purchases.) I use the card all the time for those purchases, even though I'm carrying a BT on the card.
_________________
Polonius
"Neither a borrower, nor a lender be; For loan oft loses both itself and friend"
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Guest: Bikshu
Credit Expert (100+ Posts)
Posted: Sat Sep 23, 2006 11:55 am
Its interesting because the bank is going through that exact debate right now, and is testing out both ways.
MBNA chose years ago to take a stand to a degree, and not engage in an all out price war, by offering 0% only on transfers and not on purchases. Again, I suppose the rationalization is that there are simiply too many of us intelligent credit users (read rate surfers) out there who would use it for the 0% purchases, redeem our earned travel or cash, and then simply shuffle off to another bank when it expired. In other words, it would turn out to be too unprofitable. Just out of curiousity Polonius, do you plan to continue using that Chase card for retail once the 0% expires? Do you plan to continue carrying that BT on the account once the BT expires?
BOA, on the other hand, had chosen to participate in the 0% retail pricing war. So the combined bank is now testing out this method on a select small number of new accounts. There is an offer out there, by invitation only, for a BOA (through MBNA) AmEx Rewards card with a 0% on both transfers and purchases for nine months. Some of these cards feature a 3% no max BT fee, some feature a 3% capped BT fee, and some even feature no BT fee whatsoever. No doubt the bank will analyze the results of this offer in terms of its profitibility, or lack thereof, and go from there. So the bank is giving it a shot. Having seen how a few of these account holders are using their cards, however, I can tell you already its not pretty from the bank's perspective. This is anecdotal evidence, of course, and should be judged as such... but most of those accounts I've reviewed are showing negative numbers under the profitibility category in my software (meaning we've lost money on them to date).
Now an interesting compromise would be offering non-0% promos on both BTs and purchases to inactive but existing accounts. Say a 5.99% for 12 months on both transfers and purchases, with the old capped transfer fee formula (as again I would propose we do this on already existing but inactive accounts). I wonder if this would prove more effective in winning existing card holders back to us, while still allowing the bank to at least take a small amount of profit. But alas, I'm unfortunately in no position to offer such as beast...
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
Guest: rapjunkie
Credit Expert (100+ Posts)
Posted: Sat Sep 23, 2006 2:47 pm
Bikshu - quick question - so after a month or so when the merger is complete, I'll be able to change my BofA Platinum Visa into one of the MBNA alumni Amex cards? And the terms would all remain the same?
CardRatings.com is the most comprehensive source for comparing credit card offers. Please visit CardRatings.com to view the best rated credit cards!
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