My bank has sent me these 0% APR checks for years and I recently find myself in a situation where it would be useful. I have a lot of wedding expenses which will not be a problem in the long term (6 to 12 months) but are difficult now.

The terms say something like 0% interest for 12 months (minimum payments required) and a flat 4% charged one time on the total.

What are some typical catches I should look out for in this kind of offer? Is there a better way to get the short term money I need?

The check has no limitations as far as where the money goes (will cash it into my checking) and the balance will be put on my credit card (which I don't use on a monthly basis)

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  • The only use I ever found for these checks was when they were first introduced and a 10% rebate was offered. I promptly put the biggest checks I was going to write on them, wrote a single check for the total to prepay into the card account and pocketed several hundred dollars of rebate. "He who lives by the fine print shall die by the fine print." Since then, I've contacted the bank and told them not to send me these checks, since I won't use them and they're a needless additional fraud risk. – keshlam Apr 29 '16 at 13:53

The trick is that any payment you send over the minimum required will be applied to the check balance first, not your main purchases. I guess if you don't use that card for anything else at all it might work out.

  • Thanks, I don't plan to use the card again and the checks came with clearly described terms so I'm going ahead with it. – agradl Apr 27 '11 at 14:56
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    @shiznit123 Just make sure the card STARTS with a zero balance. I.e. pay it off to the point where it says $0 balance, and then use the check. – Michael Pryor Apr 27 '11 at 15:57
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    Is that article still valid with the CARD act? I believe all payments (above the minimum) must now go towards the highest interest rate first. – Scott Apr 27 '11 at 16:04
  • @Scott. maybe you are right, the article is from 2008. Or maybe it's one of the loopholes of convenience checks? Honestly anybody offering a 4% unsecured loan is a little suspicious to me in 2011. – Vitalik Apr 27 '11 at 17:23
  • They're certainly still out there, but not as common. Before these 4% transaction fees came along a lot of people would apply for a whole bunch of credit cards (in the same day) then transfer near the credit limit into a savings account, and simply make the minimum payments come from it automatically. When you could find 2 or 3% savings accounts you could actually make some decent money. Now with rates so low (and low transaction fee cards nearly gone) it's not worth the effort. – Scott Apr 27 '11 at 18:10

If you think you can pay off the entire amount you borrowed over the next 12 month, then you're getting an unsecured loan at around 4% APR, assuming you're borrowing for the whole year.

That's pretty good compared to what you can typically get at the credit union. However, if you only need the money for, say, 3 months, that 4% fee effectively becomes a 16% APR!

And, the real trouble comes when you don't pay it off by the end of the 12 month and the standard rate kicks in.

If you do use the convenience check, be sure to put in your calendars a reminder that the balance is due -- set the reminder about a month before the last billing cycle of your 0% period.

Make sure you also have sufficient cash flow and an automated payment setup to make sure you always pay at least the minimum due on time. Depending on your banking history, you might be able to get away with one missed payment -- but more likely, you'll be penalized as soon as you miss a payment by a penny or a day -- and the 0% loan suddenly becomes very expensive.

Read all the fine print, make sure you understand them, and set up a system to make sure you can play to the rules of the game.

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