Photo by Pink Sherbet Photography

I am sure you have come across like a million times those fund transfer “promotions” offers where you just need to pay a “low” 3%-5% processing fee and enjoy 12-24 months of interest free installments.

Let’s do some maths with the help of financial calculator to see if it is really worth it.

Consider a $1,000 loan with a 5% upfront processing fee, payable in 12 installments. How much annual interest are you paying?

Installment for the loan is $1000/12= $83.33/month

Number of payments is 12

Present value of loan is $1000-$50 (processing fees)= $950

Effectively, it means that you borrow $950 but have to pay $83.33 per month for 12 months.

Using a financial calculator, the interest rate is 0.7981% per month, or 9.58% per year.

No prizes to guess why you get to enjoy “free” gifts when you sign up with a minimum $5,000 loan.
Read more…