A 0% gift horse? Just check its mouth first . . .
Probes a world of scams and scandals
H.O. writes: I took up an unsolicited offer from Sainsbury’s Bank of an interestfree loan with just a 3 per cent set-up charge. But Sainsbury’s linked the £4,000 I borrowed to my Sainsbury’s credit card. I am now charged interest at 16.94 per cent on all purchases unless I pay off the full amount on the monthly statement, including the £4,000. Though I am sure this is legal I regard it as unfair trading. For many years I have used the card for all my purchases and paid the full balance by the due date to avoid paying interest. THE letter you received from Sa ins bury’ s Bank looked straightforward. It uses terms such as ‘ interest- free’, ‘ pay no interest’ and ‘ 0 per cent interest’.
But it is not the kind of loan that hands over £4,000 for you to spend in any way you wish. It is a way for you to transfer the balance on a rival credit card, so it becomes part of the balance on your Sainsbury’s credit card.
The advantage of this is you stop paying interest on the £4,000. But as you found, there is a sting in the tail. You have always paid off the balance on your Sainsbury’s card each month rather than face interest charges. Yet now, you suddenly face such charges.
You sent me your card statement showing a balance due of £4,810 including the £4,000 balance transfer.
You paid exactly £1,000 which more than covers the amount you spent on purchases, but you faced an interest charge of more than £13.
When you protested, Sainsbury’s told you: ‘The only way you can stop interest being applied is to pay off the whole balance including the balance transfer.’ This is correct.
The explanation lies in the small print on the back of the bank’s letter offering you the £4,000. There are 11 points listed as conditions. The ninth of these says: ‘If you make purchases, these won’t be interest- free unless you pay off your entire balance each month( your balance includes any balance transfers).’
In other words, there are just two ways you can avoid paying interest. The first would have been to stump up £4,810 to clear your card in full.
But if you had been able to do this, why would you have bothered paying a 3 per cent fee to transfer the debt from your other card? Surely you would simply have paid off that card in full?
The other way to avoid paying interest is to accept the £4,000 transfer to the Sainsbury’s card, make the minimum repayments, but lock the card away and do not use it until the interest-free period on the £4,000 has expired. If you still had your other credit card, you could use this for shopping and pay off each month’s balance in full. Or you could apply for another card and stop using the Sainsbury’s card.
I approached Sainsbury’s Bank and it told me :‘ Mr H. O. has opted for one of our balance transfer credit cards where we offer zero per cent on the transferred balance with a 3 per cent fee.
‘The zero per cent remains on the transferred balance for the duration of the offer period, in this case 18 months. The customer is still required, however, to pay interest on any new purchases. We make this clear in our terms at the point of purchase.’
All this is true. But equally, the only reason you have been charged interest on your purchases is because of the £4,000 balance transfer. Not because you failed to pay for the purchases themselves.
The balance transfer scheme may well work for lots of people, but as gift horses go it is worth taking a close look in its mouth.