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The usual excuse is "everybody does it" but does that make it ethical, honest, or even legal? There are a number of instances in which common industry practices have been ruled fraudulent or otherwise illegal. It's time to call a spade a spade, and declare offers like this fraudulent.

Here's what you're promised:

The [attached] checks can be used for anything. In fact, you can even use one to pay your taxes. It's as easy as paying with a personal check, except that the money comes from your Sears Gold MasterCard credit line. Plus, you can save money!

Use the top two checks to get a fixed 1.99% APR until September 2004.

footnote: If you fail to pay the minimum payment due by the minimum payment due date for two consecutive billing cycles, the terms of this promotional offer may be cancelled and we may immediately increase the interest rate on your account to the Annual Percentage Rate specified in your cardholder agreement.

So never mind that you have to comply with the repayment terms to get this interest rate for the entire period. Never mind that that if you also use your card for purchases and try pay off those purchases in full, you'll actually be paying down this low-interest debt instead of the higher interest debt charged against your purchases.

The question we want to ask is: Assuming you comply with the repayment terms, assuming you don't put any other charges on this account, can you actually borrow money for the 4 month period promised and get a true Annual Percentage Rate of 1.99%?

Is this such a tough standard to hold them to? To actually expect Sears to give you an accurate APR? Let's do the arithmetic and find out:

We'll assume that I borrow $1000 on May 15, 2004, and repay the accrued interest plus $250 toward the principal each month. Here's how it should work out:

period ending date starting balance interest accrued payment
June 15 $1000 $1.67 $251.67
July 15 $750 $1.25 $251.25
August 15 $500 $0.83 $250.83
September 15 $250 $0.41 $250.42
total paid in full $4.16 $1004.16

If you follow this payment schedule, however, here's what actually happens:

period ending date starting balance interest accrued payment
June 15 $1030 $1.73 $251.67
July 15 $780.06 $1.30 $251.25
August 15 $530.11 $0.88 $250.83
September 15 $280.16 $0.47 $250.42
still owing $30.21   $30.21
total   $34.37 $1034.37

OK, we're not really concerned about the twenty-one cents in extra interest, but the $30 transaction fee buried in the fine print on the back of the offer.

So if $4.16 represents a 1.99% APR, then the APR if you pay $34.37 to borrow the same amount of money for the same term comes out to 16.44% APR.

That's the TRUE RATE of this offer.

Topic SearsMastercardConvenienceCheckOffer . { Edit | Ref-By | Attach | Diffs | r1.1 }
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Revision r1.1 - 05 May 2004 - 02:46 by EliMantel web search for EliMantel
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