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Living in Patagonia
Member
Username: Soulskier

Post Number: 99
Registered: 9-2008
Posted on Friday, January 30, 2009 - 5:52 pm:   Edit PostPrint Post

Although this is an Argentine forum, I really value some of the regular posters views. So here it goes.

How can Citibank send me an email offering up to US$25,000 cash advance with a 0% rate until July 1? Yes, there is a 3% fee, but I am particulary stumped as I seem to recall our tax dollars just bailed them out?

That's like giving a heart attack surviver a greasy cheeseburger for their first meal in the hospital when they wake up.

I await views from the collective.
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Simon Fawkes
Member
Username: Expatba

Post Number: 78
Registered: 1-2007


Posted on Saturday, January 31, 2009 - 7:33 am:   Edit PostPrint Post

Hi Soulskier

In the UK many banks and credit card companies offer these kind of 0% deals all the time - I probably receive one a week in the mail on average.

Banks offer 0% deals because they want to entice you as a customer. Once you look beneath the surface these deals are not as good as they seem. For a start, there is a 3% handling fee. When you consider you are only borrowing "interest free" for 5 months, the handling fee equates to interest equivalent to 7.2% over this time - hardly free money.

But that is not how the banks make most of their money on these kind of deals. They rely on the fact that the majority of cutomers won't pay off the balance by the end of the interest free period, and will got onto the standard card rate, which may be 25% or higher. I read an article a few months ago (I think it was in the UK Sunday Times) that said that on average 70% of people never refinance, either because they forget, or are too procrastinative, before the so-called "interest free" period expires.

And the third reason is at the end of the day they now have you as a customer, when the chances are you wouldn't be if you hadn't taken up the offer, so they will make more money from you in the future.

So although it might look like madness at first sight, actually these kinds of offers are extremely lucrative for the banks.

Cheers

Simon Fawkes
Author, The Complete Guide To Real Estate Investment in Argentina, ISBN 0557001927 http://www.amazon.com/exec/obidos/ASIN/0557001927
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Living in Patagonia
Intermediate Member
Username: Soulskier

Post Number: 102
Registered: 9-2008
Posted on Saturday, January 31, 2009 - 8:50 am:   Edit PostPrint Post

Thanks for the breakdown Simon. I understand the jest of what they are doing, but as a tax paying American, it bothers me that my tax dollars just bailed CitiBank out and they are doing this kind of business. BTW, my rate would default to 10.4% on July.
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Apartmentsba.com
Senior Member
Username: Saint

Post Number: 699
Registered: 5-2005


Posted on Saturday, January 31, 2009 - 10:19 am:   Edit PostPrint Post

Simon's post is accurate. When I lived in the USA I used to get a few of these per week. I didn't realize that banks were still doing this. As Simon mentioned, it's NOT 0% because of the initial fees involved. I've seen fees from 3% to 5% on the front end.

This is not wise on the credit card companies part, IMHO. You will see people taking advantage of these types of offers and many people will lose their jobs or already have lost their jobs. What you will see is these people take these "0% offers" and then not be able to pay back the money. The loan loss rates at credit card companies should continue to increase over 2009 and 2010 as well.

Frankly I'm surprised to hear banks are still doing this in this kind of environment. The danger is even people with great credit scores will lose jobs so even if they have a past history of making good payments on time, they could be the next ones to default during 2009 and 2010.

Most credit card companies are reducing credit lines or even closing them not expanding or increasing them via these kinds of offers. This is a good example of why Citigroup is just about insolvent. Bad business plan after bad business plan.

Seeing things like this is the reason why Citigroup is trading in the $3/$4 range.
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Living in Patagonia
Intermediate Member
Username: Soulskier

Post Number: 103
Registered: 9-2008
Posted on Saturday, January 31, 2009 - 9:45 pm:   Edit PostPrint Post

As a US tax paper that just bailed this bank out, I am not pleased they are offering these risky advances.
I am half tempted to take the 25K and then say "Sorry, I can't pay it back." But I am a believer in good karma, so I won't. Thanks for your input.
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WTMendoza.com
Advanced Member
Username: Welcometomendoza

Post Number: 373
Registered: 7-2007


Posted on Wednesday, February 11, 2009 - 1:00 am:   Edit PostPrint Post

Actually in spite of all the complaints of "institutions not lending", there is a massive effort underway by many, including Citibank, to loan out TARP monies, just look at the fine print of TARP. Credit worthy people do indeed receive these offers currently, that's partly what is is for. They are for sure being more selective, I hope.

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