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> 1. For the consumer, paying off the balance due at the last minute gives you an interest-free loan on your spending for an average of 6 weeks. Let's say you s

> 1. For the consumer, paying off the balance due at the last minute gives you an interest-free loan on your spending for an average of 6 weeks. Let's say you spend $1000 per month. At 5% interest, that saves you about $30 a month. Saves you versus... taking a 5% loan for the 6 weeks? You need to actually invest the money versus paying the credit card to earn interest. The average consumer is not walking around picking up pennies in front of a steamroller trying to get $30/month with clever interest rate arbitrage. > Not many people seem to understand the time value of money, certainly it isn't taught in school Realistically a person will take out loans for like 4-5 transactions in their life where this actually matters. House, car, student loans, maybe a small business. If you look at personal finance advice they usually use the "snowball method" of simply paying down the highest-interest debt first and reducing expenses.

WalterBright 2y ago
> taking a 5% loan for the 6 weeks? You need to actually invest the money versus paying the credit card to earn interest. And I do. I don't have any actual money. It's all invested. I look for ways to borrow money at a lower rate and invest it at a higher rate. > Realistically a person will take out loans for like 4-5 transactions in their life where this actually matters. Every time you buy something with a credit card, you take out a 0% loan for 6 weeks. If you pay attention to what a bank does, if the bank hands you a check for borrowed money, they start charging you interest immediately. If you pay off the loan by handing them a check, they charge you interest until the check clears. I.e. the bank works the float both ways. The pennies add up. If you're not aware of this for a large transaction, the other party surely is and is taking advantage of you. A few years ago, it was commonplace for late night TV to run seminars that I call "Make Money By Real Estate Scamming". I decided to watch one and see how it went. The presenter presented a series of transactions that ended up netting the buyer $15,000. It was complicated, so I set about figuring just how the $15,000 from nothing came about. It turns out it hinged on giving the sucker a bond that paid $X upon maturity in lieu of paying $X today. The $15,000 was the interest on the time to maturity. The complications were all about hiding this.
- WalterBright 2y ago
  For example, I'll get flyers in the mail offering mortgages for an absurdly low teaser interest rate for the first year, and after the first year the interest rate goes above market. I carefully read the contract. If there's no prepayment penalty, I'll get the loan. A year later, I refinance and pay off the first mortgager. I asked my loan officer "why do they do these contracts?" He laughed and replied they were playing the odds - the vast majority of people are too lazy to refinance, or didn't read the contract. Once I bought a new car, and they offered 0% financing after we agreed on a price. I asked, why would they offer 0% financing? The dealer said the terms of the contract were if you are late on a payment, you get hammered with interest. I said sure, I'll take the loan, and set up an automatic payment plan. This is all basic stuff. The credit card thing is mostly just for practice.
toast0 2y ago
> You need to actually invest the money versus paying the credit card to earn interest. The average consumer is not walking around picking up pennies in front of a steamroller trying to get $30/month with clever interest rate arbitrage. They should be. Interest bearing checking is out there. No real danger there. It's not glamorous, but depending on how much interest you're getting, paying with tommorow's dollars for today's purchases gets you about 0.4% off (based on bad math of apy is 3.25% * 45 days / 365 days in a year; I know this isn't the right way to use an APY, but you can also find better interest checking than my credit union)

WalterBright 2y ago

> taking a 5% loan for the 6 weeks? You need to actually invest the money versus paying the credit card to earn interest. And I do. I don't have any actual money. It's all invested. I look for ways to borrow money at a lower rate and invest it at a higher rate. > Realistically a person will take out loans for like 4-5 transactions in their life where this actually matters. Every time you buy something with a credit card, you take out a 0% loan for 6 weeks. If you pay attention to what a bank does, if the bank hands you a check for borrowed money, they start charging you interest immediately. If you pay off the loan by handing them a check, they charge you interest until the check clears. I.e. the bank works the float both ways. The pennies add up. If you're not aware of this for a large transaction, the other party surely is and is taking advantage of you. A few years ago, it was commonplace for late night TV to run seminars that I call "Make Money By Real Estate Scamming". I decided to watch one and see how it went. The presenter presented a series of transactions that ended up netting the buyer $15,000. It was complicated, so I set about figuring just how the $15,000 from nothing came about. It turns out it hinged on giving the sucker a bond that paid $X upon maturity in lieu of paying $X today. The $15,000 was the interest on the time to maturity. The complications were all about hiding this.

WalterBright 2y ago
For example, I'll get flyers in the mail offering mortgages for an absurdly low teaser interest rate for the first year, and after the first year the interest rate goes above market. I carefully read the contract. If there's no prepayment penalty, I'll get the loan. A year later, I refinance and pay off the first mortgager. I asked my loan officer "why do they do these contracts?" He laughed and replied they were playing the odds - the vast majority of people are too lazy to refinance, or didn't read the contract. Once I bought a new car, and they offered 0% financing after we agreed on a price. I asked, why would they offer 0% financing? The dealer said the terms of the contract were if you are late on a payment, you get hammered with interest. I said sure, I'll take the loan, and set up an automatic payment plan. This is all basic stuff. The credit card thing is mostly just for practice.

toast0 2y ago

> You need to actually invest the money versus paying the credit card to earn interest. The average consumer is not walking around picking up pennies in front of a steamroller trying to get $30/month with clever interest rate arbitrage. They should be. Interest bearing checking is out there. No real danger there. It's not glamorous, but depending on how much interest you're getting, paying with tommorow's dollars for today's purchases gets you about 0.4% off (based on bad math of apy is 3.25% * 45 days / 365 days in a year; I know this isn't the right way to use an APY, but you can also find better interest checking than my credit union)