"Interest free" offer from Amex

[dajop]

Any wonder financial institutions get bad press, and get royal commissions into their conduct, so this week I noticed an interest free offer (which is of no interest to me) which was promoted as:

Whether you’re ticking off your bucket list or renovation list, American Express Instalments lets you take control of larger purchases. It’s the interest-free way to make purchases of $300 or more on your Card and pay them off over 12 months. Enrol now and all eligible purchases for the next 3 months on your Card ending ... will automatically be placed into an instalment plan. Please note, a 4% establishment fee applies.

So it's interest free, but a 4% establishment fee applies, and must be paid off within 12 months. If paying off in monthly instalments, the 4% "establishment fee" is equivalent to ~ 7.06% interest p.a. What a complete con, praying on those ill equipped to understand smoke and mirrors

 

[SeaWolf]

I got the same email and was similarly unimpressed.
They're trying to compete with the popularity of AfterPay etc. and I can understand why. Those services are popular for a reason, and even though the repayment period is very short (eight weeks) they don't charge anything for the service.
I'm a little unsure how you arrived at the 7.06% interest rate though. My reading of it was the you paid a one-off 4% fee when you made the purchase activating the payment plan and then that was it for that purchase. Have I missed something?

 

[Ade]

I got this "interest-free" offer when I called up AMEX to see if I can get any bonus Qantas points. Like @dajop mentioned, this offer was of "no interest" to me. I usually pay the balance owing in full every month, so not beneficial for me, really.

 

[dajop]

I'm a little unsure how you arrived at the 7.06% interest rate though. My reading of it was the you paid a one-off 4% fee when you made the purchase activating the payment plan and then that was it for that purchase. Have I missed something?

Thanks for illustrating my point, re the smokes and mirrors that most would not think about.

If you look at it mathematically, usually with interest you don't pay up front, most often you pay a monthly interest on debt you had over the previous month. As the payment plan is for 12 months, you will be paying down the debt each month, so whilst the interest rate remains the same, the amount of interest you pay reduces each month. (such that on a $1200 purchase, by the time you get to the end of the payment plan, your final instalment will only have one month worth of interest on the last $100).

Effectively this means, that a 4% "establishment fee" paid upfront (and then no interest thereafter) will mean you pay the same amount of money as someone paying off the debt over the course of a year with the annual interest rate of 7%. (If you do the math, and had $1200 paying offer over a year, @ 7% you would pay approximately $46 in interest in total, whilst with a 4% establishment fee you pay a $48 in total)

See what I mean? Smoke and mirrors!!

 

[mrsterryn]

I have had similar from St George except it was transfer outstanding balances blah blah blah
My cards are paid off in full each month.
St George is only used to keep to keep it alive as it has no points associated with it

 

[SeaWolf]

Effectively this means, that a 4% "establishment fee" paid upfront (and then no interest thereafter) will mean you pay the same amount of money as someone paying off the debt over the course of a year with the annual interest rate of 7%. (If you do the math, and had $1200 paying offer over a year, @ 7% you would pay approximately $46 in interest in total, whilst with a 4% establishment fee you pay a $48 in total)

Ok, yes that makes more sense to me now. Although if you did have a very large purchase that you intended to pay off in increments this would be less than the usual interest rates that the cards normally attract.
Really though if you're in the reward cards game then any interest payments are going to wipe out the benefits of the points.