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Financing a new laptop? Do the math first

Summary

A 0-percent finance deal to buy a new computer is almost too good to pass up for one consumer. But being new to credit, this might not be the best way to go

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Question

Dear Opening Credits,
I’m new to credit and was looking around online to purchase a MacBook Pro from Apple for $1,499. I was looking to finance it through Barclaycard with Apple rewards; they have an offer that says 18 months of financing with 0 percent APR if paid in full before promo time. I saw that people say it’s a good card for purchasing expensive Apple products, but how does it work? People get approved for $1,500 and more. Do I use the money I’m approved for to pay the laptop off in full or every month do I deduct to pay for it? — Bryant

Answer

Dear Bryant,
If you were to qualify for this credit card (and given the information you’ve provided, it’s a mighty big “if”), you could charge the cost of the desired Apple item and walk home with it immediately. This Barclaycard suspends all interest fees for a specific time frame, unlike a credit card that does not offer a 0 percent promotional offer where interest would be added to the balance if you don’t pay the full amount in a month or so.

This particular card would give you about a year and a half to satisfy the full balance with no finance charges added to the purchase price. However, if any amount remains unpaid after that 18-month period is up — even if it’s just a few bucks — or if you are ever late with a payment, all of the deferred interest will be applied to the outstanding debt. At that stage, the sweet deal suddenly becomes a sour one.

Just how unpleasant it will be depends on the interest rate. According this card’s terms and conditions, the APR is either 13.99, 19.99 or 26.99 percent. What you might be offered is contingent on your credit rating. So, if you were to get this account and did get socked with the accumulated finance fees, they would look something like this:

13.99% APR = about $348
19.99% APR = about $520
26.99% APR = about $738

Clearly, the interest rate makes a difference in the final bill, but in all cases, you’d owe a lot more than you anticipated.

To avoid this situation, you must make sure the entire debt is deleted by the last month of the deal. As you don’t have to account for finance fees, the calculation for what you’d need to send on a monthly basis is simple: $1,500 divided by 18 months is about $84 per month.

You wouldn’t want to cut it that close, though. It would be a good idea to increase the payments to at least $100, as that would guarantee a complete payoff within 15 months. Figure the highest amount over $84 that you can reasonably afford to send, then have that sum automatically deducted from your checking account and sent to the creditor. This way you’d also ensure a perfect payment pattern, which would not only hike up your credit scores, but would prevent the interest rate from kicking in.

The reason I hesitated about you getting this card in the first place, though, is that you’re new to credit. Without an established credit history, you wouldn’t have a credit score for the issuer to assess. This will be a major stumbling block to being approved.

Most issuers expect applicants to have a good credit score (plus meet income requirements) to qualify for 0-percent credit offers. To achieve a high score, you need to have a lengthy history of borrowing money and repaying it responsibly. If you don’t, don’t bother trying for this product. To find out your credit score, go to myFICO.com and pay about $20 for one of the scores from one of the top three credit bureaus: Equifax, Experian or TransUnion.

Then consider a starter account, such as a secured credit card, instead of the Barclaycard. The credit line on a secured card may not be large enough to charge the price of the laptop, but if you use the card right for at least a year, you’d be well on your way to a really good rating — and might be eligible for the Barclaycard and other low rate promotional cards later.

In the meantime, use the cash in your checking account to buy the laptop or start saving for it. If you could sock $375 away a month, it would be yours in four months, no plastic needed.

See related:Maxing out card might be worth temporary credit score ding, 7 times to put yourself in credit card timeout, Apply for your first credit card, then remove yourself from Dad’s