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Unorthodox way to finance vehicle and avoid paying interest
Posted on 2/23/20 at 11:45 pm
Posted on 2/23/20 at 11:45 pm
TLDR: I want to churn 0% interest credit cards to pay for a vehicle and use my HELOC as a safety net.
I'm looking at purchasing a used vehicle for $20,000. I do not have cash and am looking at financing for 48 months. Let's assume I can get 4% interest on the loan, putting my monthly payment at about $450. Over 48 months, I would pay about $1,700 in interest. I'd like to avoid that.
I am instead considering using my HELOC to buy the vehicle. The HELOC is at 5.9%, but my plan would be to open 1-2 credit cards at 0% interest for 15 months with a $0 balance transfer fee, and carry the debt there. After 15 months, I would pay off the cards with the HELOC and repeat the process. And then again. By this point the credit cards will be paid off and I will have paid close to $0 in interest.
Even if I am unable to get approved for more cards after the initial 15 months, the balance on the cards will have been reduced to $13,250 after making 15 payments of $450. After paying off the cards with the HELOC, I can continue to make $450 monthly payments at 5.9% interest until I pay it off. In this scenario I will still only pay about $1,100 in interest.
In the absolute worst case, highly unlikely scenario where my bank freezes my HELOC for whatever reason, I could divert all 401k and Roth contributions to the credit cards and have the debt paid off in 6 months.
So, what are the reasons not to do this? It seems like a pretty easy way to save some money.
I'm looking at purchasing a used vehicle for $20,000. I do not have cash and am looking at financing for 48 months. Let's assume I can get 4% interest on the loan, putting my monthly payment at about $450. Over 48 months, I would pay about $1,700 in interest. I'd like to avoid that.
I am instead considering using my HELOC to buy the vehicle. The HELOC is at 5.9%, but my plan would be to open 1-2 credit cards at 0% interest for 15 months with a $0 balance transfer fee, and carry the debt there. After 15 months, I would pay off the cards with the HELOC and repeat the process. And then again. By this point the credit cards will be paid off and I will have paid close to $0 in interest.
Even if I am unable to get approved for more cards after the initial 15 months, the balance on the cards will have been reduced to $13,250 after making 15 payments of $450. After paying off the cards with the HELOC, I can continue to make $450 monthly payments at 5.9% interest until I pay it off. In this scenario I will still only pay about $1,100 in interest.
In the absolute worst case, highly unlikely scenario where my bank freezes my HELOC for whatever reason, I could divert all 401k and Roth contributions to the credit cards and have the debt paid off in 6 months.
So, what are the reasons not to do this? It seems like a pretty easy way to save some money.
13
Posted on 2/23/20 at 11:47 pm to PhiTiger1764
Posted on 2/23/20 at 11:57 pm to Paul Allen
Helpful. Have an upvote.
Posted on 2/24/20 at 12:26 am to PhiTiger1764
quote:idk about that, that sounds like a lot of trouble actually.
It seems like a pretty easy way to save some money.
Posted on 2/24/20 at 1:58 am to PhiTiger1764
Seems easier to offer $18,500 for the vehicle and finance it.
Posted on 2/24/20 at 4:00 am to PhiTiger1764
This feels like one of those ideas where everything is going to plan, then you end up with some random emergency room trip and suddenly you're in really deep shite across the board
Posted on 2/24/20 at 4:32 am to PhiTiger1764
You can get 48 month auto loans with a credit union for less than 2% APR.
Posted on 2/24/20 at 4:45 am to PhiTiger1764
Balance transfers have transaction fees usually 3-5% of the amount
Posted on 2/24/20 at 6:32 am to ellesssuuu
quote:
Balance transfers have transaction fees usually 3-5% of the amount
This is what I saw when I was working my way out of debt. You would have 2 options:
0% interest for 15-18 months w a 3-5% transfer fee.
Low interest rate , around 5%, with 0% transfer fee
I never saw both offered
Posted on 2/24/20 at 6:43 am to ellesssuuu
quote:
Balance transfers have transaction fees usually 3-5% of the amount
This. Credit card balance transfer 0% interest is basically BS to get you excited to do it but they make their fee up front. There’s no balance transfer for 0% with 0% interest. They aren’t holding your debt for free.
Posted on 2/24/20 at 7:04 am to jmcwhrter
quote:
This feels like one of those ideas where everything is going to plan, then you end up with some random emergency room trip and suddenly you're in really deep shite across the board
This is my hold up..
Posted on 2/24/20 at 7:06 am to Lgrnwd
quote:
You can get 48 month auto loans with a credit union for less than 2% APR.
I am not seeing this advertised. Not at Penfed or Lightstream which is what I see typically recommended by the board.
Posted on 2/24/20 at 7:08 am to baldona
quote:
This. Credit card balance transfer 0% interest is basically BS to get you excited to do it but they make their fee up front. There’s no balance transfer for 0% with 0% interest. They aren’t holding your debt for free.
If I have to pay any fees, it obviously wouldn’t make sense. There are several $0 balance transfer fee and 0% interest credit cards. The concept also works if I get a 0% purchase card and put all expenses on it and pay minimum payments.
Posted on 2/24/20 at 7:14 am to PhiTiger1764
I mean, seems like opening several unnecessary credit cards for what I would consider not a great risk/reward trade off. Seems like a lot of unnecessary work.
Also, I’m pretty sure you’re going to get hammered on transaction fees on putting the initial purchase on the card or taking the HELOC out that’ll surely dent the benefit of trying to do it.
It’s your call ultimately, but to me, it does not seem like a great idea.
Also, I’m pretty sure you’re going to get hammered on transaction fees on putting the initial purchase on the card or taking the HELOC out that’ll surely dent the benefit of trying to do it.
It’s your call ultimately, but to me, it does not seem like a great idea.
This post was edited on 2/24/20 at 7:16 am
Posted on 2/24/20 at 7:19 am to PhiTiger1764
quote:
You can get 48 month auto loans with a credit union for less than 2% APR.
I am not seeing this advertised. Not at Penfed or Lightstream which is what I see typically recommended by the board.
That's probably the rate for 840 score and a new vehicle. Used vehicles are going to require a higher rate.
Posted on 2/24/20 at 7:30 am to southernelite
In reality, the work involved is minimal. I’ve already got the Heloc and opening a credit card takes very little time.
I think most people have become conditioned to paying interest on auto loans because this is how it has always worked. There are these other options and tools available to avoid it. It will take someone with financial discipline. But if these tools are available, why not take advantage of them?
I appreciate the input. I came here to get opinions on why it’s a bad idea and I’m getting plenty.
I think most people have become conditioned to paying interest on auto loans because this is how it has always worked. There are these other options and tools available to avoid it. It will take someone with financial discipline. But if these tools are available, why not take advantage of them?
I appreciate the input. I came here to get opinions on why it’s a bad idea and I’m getting plenty.
Posted on 2/24/20 at 7:33 am to PhiTiger1764
Shoot us a link with the 0% balance transfer and $0 transaction fee as a show of your appreciation.
Posted on 2/24/20 at 8:08 am to PhiTiger1764
Sounds good as long as there’s no account or transaction fees on all that and nothing unplanned happens for 4 years. Because ruining your credit is definitely worth 1700 bucks. Keep us updated
Posted on 2/24/20 at 8:29 am to iknowmorethanyou
Yeah, I haven’t seen an offer like that in several years. Usually they offer one or the other, but not both. I got one from Chase several years ago. But I’m pretty sure that they don’t offer that deal anymore. If he can find one, more power to him. But the risk is in what several others have mentioned... especially since he’s admitted to not having cash on hand (other than a HELOC).
There’s at least two young fellows on this board who would encourage him to not only do this, but to also hit the HELOC and put it in the market for that (guaranteed?) 8%. According to one of them, “that’s how rich people make their money.” Apparently they don’t teach the concept of risk adjusted returns, or what a Sharpe ratio is, in finance class these days.
There’s at least two young fellows on this board who would encourage him to not only do this, but to also hit the HELOC and put it in the market for that (guaranteed?) 8%. According to one of them, “that’s how rich people make their money.” Apparently they don’t teach the concept of risk adjusted returns, or what a Sharpe ratio is, in finance class these days.
Posted on 2/24/20 at 8:35 am to PhiTiger1764
get a 3% loan and pay it off in 24-36m.
You're paying like 1000 dollars over the course of 3 years to not have to do that bullshite and have some peace of mind
You're paying like 1000 dollars over the course of 3 years to not have to do that bullshite and have some peace of mind
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