Citibank Call for Cash Affordable Credit Card Loan?

Someone called me about the Citibank credit card, and offered the Call for Cash promo. You get to borrow money for only 0.68 percent interest per month.

You can choose the tenor, whether you want to pay the loan back over 6, 12, 18, or even 24 months.

Let's assume you'll borrow P100,000 and will repay it fully over 12 months. Divide the principal by 12 months (100k/12 = P8,333.33), add the monthly interest (0.68% x 100,000 = P680.00), and that means you'll need to pay P9,013.33 monthly.

Perhaps there was some confusion with the telemarketer, because if my monthly payment will cover both the principal and the interest, then the interest expense should go down each month as the outstanding loan goes down.

As it is, it looks like the interest expense remains fixed.

If I follow that pattern, I will end up paying a total P108,160 after 12 months, or an overall interest rate of 8.16% (which isn't too bad, actually, compared to bank loans).

Anyway, it looks like a good deal. Just as long as you don't pay less than the monthly obligation to your credit card company. Otherwise, the unpaid portion will be charged interest at 3.5% per month! Whoa.

And if you decide to fully pay off the loan earlier than expected, then you'll need to pay a processing fee equivalent to 4% of the outstanding principal. Processing fee? Sounds like an interest expense.

Imagine, if you pay off your 12 month credit card loan in 6 months, you'll end up paying P23,230 in interest charges on a P100,000 loan... in a 6 month period. How do feel about giving someone 23.23% on a 6-month loan? ;-)

If you can find some place to invest those funds, which will give you at least 9.01% return per month, you'll be able to cover the P9,013.33 monthly. This means that if you want to make extra money, find a business that will give you quick, short-term earnings larger than 9.01 percent monthly.

Is there such a business?

If there were, would your credit card company lend the cash to you or to that business? :-)

The telemarketer told me that the monthly interest of P680 is quite small. Sure, it does look small. But what about the P8,333.33 payment on the principal? Where will I get funds to pay back the "affordable" credit card loan, I mean "call for cash."

I politely turned down the invitation by the telemarketer and told him that I don't have funds to cover the additional interest expense of P680 each month.

Anyway, let's all learn and improve our financial literacy so that we can preserve or--better yet--increase our wealth. Resist the urge to borrow and splurge on things which cannot bring us back at least 9.01% per month.

Good luck and happy budgeting! :-)

[ First posted on 11/20/2010 by Manuel Viloria ]