I have big plans of buying a new laptop and I was kind of excited upon seeing on tv the ad about the computer sale in a nearby mall (that opened last Dec 2). The computer sale is offered in cooperation with a credit card (fortunately, my credit card) on a zero interest for purchases on a 12-month installments. I have been thinking since this morning that the bargain seemed to be too good to be true. With the electronic store, okay, they earn a profit from my purchase. But what would the credit card get if my purchase is zero interest? I am quite confused.
Cards offer 0% interest, but they still take a percentage of the sale from the retailer. Credit card companies charge the retailer for the services and that's how they make their money. Each company has different rates, and American Express has the highest rate which is why many retailers prefer not to use them as they make less profit.
Not all so-called zero % interest purchases on installment are actually zero percent. In reality, most stores have separate prices for cash/straight credit card purchase and installment purchases. They will typically call the price difference as discount for cash/straight purchase. The difference can range from 10-20% which makes me really think hard about buying stuff on installment or at zero percent these days. Some stores would even add an additional 5% surcharge to pass the credit card's charges to consumers. Besides the charges on purchases, credit card companies earn compounding interest charges on your purchases if you have an existing balance and you're not paying your credit card in full each cycle.
