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## A Balance Transfer Offer

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**THE SCENARIO**
I recently got a balance transfer credit card offer in the mail, and I was curious so I took a look at the details.
The card has a $7,000 credit limit and 0% interest on balance transfers over the first 21 months after the transfer. The fee to do the transfer is 5% of the transferred amount, which is added to the balance on the new card.
**The question:** If I were to get this card and transfer a $6,500 balance to it, what would my effective annual interest rate be if I pay it all off at the end of the 21 months? Assume that no payments are due in the meantime*.
* In reality, some payments will be due, but they'll be fairly modest - usually around 1% - 2% of the outstanding balance. Because the payments are small and factoring them in will complicate the question, we'll leave them out for now.

**THE SOLUTION**
This one is pretty straightforward. The only thing we don't know is how much our initial balance will be.
If we transfer $6,500 to the card and there's a 5% fee, we have to pay back $6,500 x 5% = $325 more than we transferred.
$6,500 + $325 = $6,825.
First things first, make sure the calculator is using 12 Payments per Year.
N: 21 (The offer is for 21 months interest-free)
I/YR: (This is what I'm trying to find)
PV: 6,500 (I'm transferring a $6,500 balance to the card, which means that I'm borrowing $6,500 from the card company)
PMT: 0 (We're assuming that no monthly payments are due)
FV: -6,825 (I'll have to pay back $6,825 at the end)

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The effective interest rate on the '0% interest' 21-month loan from the credit card company is **2.79%**. Not zero, but not too shabby, either.

What do you think? Does this sort of balance transfer offer appeal to you? Why or why not? Let us know in the comments!