Is paying off an $11k auto loan with a credit card a bad idea?

April 23, 2009 7:31 AM

Tricky car loan situation. I'm thinking about paying off the remainder of a car loan with my credit card. Is this a bad idea?

My boyfriend and I have spent over a year trying to figure out the best way to get his car officially titled in his name. He's had the car since 2003 (new) and has been faithfully making (loan + insur.) payments on it. However the loan is completely in his ex-girlfriend's name (and he is listed on her auto insurance). The bank is the title holder, which means that the loan needs to be paid off in order for her to get the title and transfer it to us.

We both have really good credit (mine is over 800, his is above 675), but we also both have significant student loan debt. Consequently, we have repeatedly been turned down for a loan necessary to pay off the ex's car loan (so that she can receive the title and sign it over to us).

Here's the solution I came up with the other day:
1. Draft a contract stating that I will pay off the loan with the bank. When that occurs and the ex receives the title, she will sign it over to my bf (essentially selling the car to him for $1). We all sign.
2. I will draft a second contract, between bf and I, stating the terms of paying back the loan. We both sign.
3. Bf will register and insure himself and the car here in this state (CA), ex-gf will remove him from insurance policy, etc.

I am comfortable taking on this much debt ($11k at 11.99% APY). The car loan rates we were quoted were not any better frankly. My credit card limit allows for this purchase. Also, fyi, the car is not worth nearly that much, but its very reliable. He definitely needs to hold onto it for work, etc.

Leaving the situation as-is is not an option. The current loan is absolutely terrible. He is unable to register or insure the car in this state, or in his name. Its risky to have this situation go on with this sort of liability; I can't legally drive the car ever, and if anything happens to him or the car, it screws over his ex-girlfriend. We'd like to not make this her problem, and just get everything legit.

Is there anything wrong with this plan and/or paying off this loan with a credit card? I am worried about recent reports of people being 'dumped' by their credit card companies. Or other things, like random rate changes. Are these valid concerns, and is there anything else I should be worried about?

Fyi, I am most definitely not worried about making this sort of loan/$$ commitment to my boyfriend. We are in it together, for as long as I can foresee, and things are great. Also, he has borrowed significant money from me in the past and has paid me back on time, every time. This question is about any hidden drawbacks to paying off the loan on a credit card.

posted by anonymous to work & money (24 comments total)

Let me get this straight...You still owe $11K on a 6 year old car. How long was the original loan? What is the interest rate of the loan?

I don't know about you, but I get these blank checks in the mail from my CC company that offer 0 interest or a really 2.9% interest rate. So if you are hell bent on taking this on I'd try for one of those offers. (Or a new card with a low introductory rate)
posted by Gungho at 7:42 AM on April 23

i wouldn't replace it with a credit card loan. See if your bank would consider giving you a line of credit or a consumer loan...
posted by fozzie33 at 7:44 AM on April 23

I think it's a terrible idea, but perhaps other people with disagree. I know that my husband's credit card rate has gone through the roof, even though he has excellent credit and carries no balance. Also, he has no student loan debt. So I would be concerned about random rate changes.

It's your boyfriend's car, so why can't he use his credit card or spread it out over several cards? I imagine you want to drive the car, which is why you're getting involved, but if you really need a car, I would suggest you buying your own used vehicle and staying out of this mess.
posted by anniecat at 7:44 AM on April 23

No, no, no, no. Don't do this. For every reason that studentbaker mentioned. You'd be much better of just selling the car and having him drive a clunker that cost $500 if you need to get out from underneath this loan that badly.

Your boyfriend could also just up his payments and pay this car off faster - how much does he pay now/how much longer is the term of the loan?

This just sounds too much like "Judge Judy" case waiting to happen...
posted by po822000 at 7:46 AM on April 23 [1 favorite has favorites]

We'd like to not make this her problem, and just get everything legit.

I wouldn't worry about that, because it seems that she made it her problem in the first place by taking out a loan on his behalf. You taking out credit card debt to solve his problem is not a good solution.
posted by anniecat at 7:47 AM on April 23

One possible advantage is that paying it off with a credit card turns this into unsecured debt. If you ever need to declare bankruptcy, you may be able to discharge the debt.

I would have your BF take this on his credit cards. It is his car, after all.
posted by reenum at 7:48 AM on April 23 [1 favorite has favorites]

Keep in mind that Credit Card rates can, and do, increase.

I have solid credit, and all of my cards which have had a zero balance for years, just got jacked from 7% up to 20+% within the last few months just because my the issuers felt like it.

You need to ask yourself what happens if you put this $11k loan on your 11.99% rate card, and then the rates get jacked up to 24%?

If you're ok with the answer, then go for it. I would call your credit card company though and make sure there's no limit on the amount of a single purchase. Also call the loan originator and ask if they'll accept a credit card payment for the balance without penalty. Your credit card company may change the other bank a 3% processing fee, and therefore the other bank may not accept a bulk credit card purchase for the loan.

For example, many car dealers wont allow people to use a card to purchase the entire vehicle due to the 1-3% that they would get charged from the credit card issuer for processing the sale. This eats into the profit of the sale. This topic comes up frequently on the forums at Flyertalk.com as people want to use their Credit Cards to earn points when they purchase a new car.
posted by xotis at 7:51 AM on April 23 [1 favorite has favorites]

I don't think this is a good idea, for all the reasons listed above. And, I think there's something missing in the story, because I had the same question as Gungho -- and my guess is your boyfriend is upside-down on the loan (owes more than it's worth).

I'd consider that when drawing up your contracts. What happens if he totals the car?
posted by Houstonian at 8:00 AM on April 23

Credit card rate (20%+?) and credit limit are very likely limiting factors for the boyfriend in taking on the loan himself. Most people do not have $11k of credit line available to them, waiting to charge up. Selling the car does NOT get him out from under the loan, as its still a loan he would owe $$ on. And he's not legally able to sell a car he doesn't own anyway.

And yes, it would seem that the boyfriend is completely upside-down on the loan. A shitty person would likely walk away easily. It's been stated that he's faithfully paid this loan since 2003, so I don't think he's just going to bail and make it the ex'es problem.

Totally the car would be an absolutely nightmare I'm sure. Even a routine traffic stop could be a huge problem.
posted by iamkimiam at 8:04 AM on April 23

I am going to agree with everyone who thinks this is a horrible idea. WAY too much risk. Your bf has a history of wanting to use his girlfriends to help him out of financial difficulties--that's how he got the car he couldn't afford in the first place, right? He needs to handle his own finances and transporation needs, not you. He continues to show his fiscal irresponsibility by now roping you into the mess.

If you are dead set on doing it, I would put the car in your name...you bought it and are on the hook for it, right? Therefore, it's your car.

But if you do go the route you described, at least make sure the loan to your bf is secured by the car (and other assets since the car is worth less than the loan amount). To do this, you will not only need the promissory note, but also a security agreement.

The risks to the ex-gf are indeed real and I feel for her. But she did not post here, you did. But why would you EVER want to assume those risks from her?

Finally, it bears repeating...THIS IS A HORRIBLE IDEA--don't do it (and tell your bf to grow up and get a car he can afford or no car at all).
posted by murrey at 8:05 AM on April 23 [4 favorites has favorites]

This is technically a balance transfer, and your CC will likely charge a 3% (or more) balance transfer fee.

I would check with the bank to see if you can get a loan. If that doesn't work, call the CC and explain. See if you can get a special rate (have you been a long-term, good-standing customer?). Shop around to find the best rate.

Have you considered a person-to-person loan (like Lending Club)?

As with everyone else, I wouldn't do this for the non-monetary reasons ... I'd be hesitant because he still owes $11k on a 6-year-old loan and has already had problems with another woman on this loan. Not knowing the history, I won't blame him ... but I'd still think REALLY hard before I took on this kind of debt.
posted by steeb2er at 8:06 AM on April 23

This is a BAD bad bad bad idea.

Like others have said, work with the ex-gf and SELL the car. If it's worth more than the $11k left on the loan, then you're fine. There are PLENTY of reliable, nice used cars to be had for $5k or less. If you don't have that much money in the bank right now, at least you have a better chance of financing only a few thousand dollars vs. $11k.

No 6-year-old car is worth doing what you have described. You are putting yourself in a world of hurt, whether you realize it or not, if you go with your original plan.
posted by bengarland at 8:14 AM on April 23

You've already said that the car is not worth what is owed on it (they usually never are). Taking this debt on yourself is a terrible idea. If something comes up that makes it difficult to pay the credit card bill (or even bank loan, should you get one), you will have no way to recoup the cost of the car.

Your boyfriend and his ex got themselves into this - wait, actually - his EX got herself into this and your boyfriend has no obligation whatsoever to make payment on the car. Don't put yourself in the same situation!
posted by The Light Fantastic at 8:25 AM on April 23

Are you comfortable spending $11k on your boyfriend with no strings? If you had $11k in the bank, would you write him a check for the whole amount? And would you be willing to pay a premium on top of that for several years, to account for interest rates -- even if something happens between the two of you and you split?

nthing everyone else -- if you can find the funding, then work with the ex-gf and make it a transaction between you and her; put the car in your name. Otherwise, even if nobody is at fault and everybody has the best intentions, this has "bad breakup scenario" written all over it.
posted by media_itoku at 8:34 AM on April 23

Previously.
posted by halogen at 8:45 AM on April 23 [2 favorites has favorites]

I hate to say this but as someone who was in a similar situation with an ex-long-term-boyfriend ------- DON'T do it. Just don't. Really. I'm sorry. I know you want to hear something different but this is just a very bad idea all around, and when things went to hell in my own situation, it affected my finances for years to come. Years. As in "more years than your typical American couple stays married these days."

If you do insist on doing this, please consider it a gift and not a loan, and choose to be pleasantly surprised IF it all works out instead of devastated when it doesn't.
posted by bitter-girl.com at 8:48 AM on April 23

You should buy the car from the ex, put it in your name, list your bf as a secondary driver, and have him continue making payments to you, including any interest. Once he's paid you for the car, sign it over to him.

Worse case: he flakes out and leaves you with a car which you paid too much for, but can still sell to recoup some of your investment.

Good luck.
posted by wfrgms at 8:49 AM on April 23 [4 favorites has favorites]

The problem with the girlfriend having ownership of the car in her name is that she is then responsible for the insurance and if he has an accident while driving it is her rates that will go up. This is a messy situation. But I think the boyfriend should put on his big boy pants and solve the financial entanglement with his ex-girlfriend by himself with his own resources without involving any more girlfriends. I could understand temporarily paying for the car and transferring the deed into the girlfriend's name and then immediately selling the car to pay off as much of the loan as possible with a contract from the boyfriend that he will pay the balance ASAP. If the boyfriend needs a car he should be able to lease/purchase another car using his own credit or hard work to obtain it. Really, this is how responsible adults live their lives, not relying on a series of girlfriends to help them live beyond their means.
posted by saucysault at 9:55 AM on April 23

You have student loans. You should pay these off before taking on your boyfriend's debt.

(Whether you should take on your boyfriend's debt is another question).
posted by zippy at 10:06 AM on April 23

No no no no no. This is his problem. Do not make it your problem. This will not end well for you. If you do this, you're going to look back with deep regret and wish you'd listened to all of us well-meaning internet strangers.

As others have said, your boyfriend needs to work this out on his own, with his own money and his own credit. NOT YOURS. You are opening yourself up to a lot of unnecessary risk. Sometimes even the most solid relationships go bad, sometimes very suddenly. I know it must rankle you to have the ex-girlfriend still involved in your lives. But don't do this. Just ... don't.
posted by Kangaroo at 10:14 AM on April 23

The Civic / CT connection reminded me of fr0zen & xteraco; if you look around askme you will find a lot of relationship questions that indicate finances are one of the biggest problems in relationships. Money = power and power is a powerful dynamic in relationships. Marriages break up over money and you guys aren't even that committed. You may be with him "for as long as I can foresee" but that debt may last longer than the relationship. You have no idea what may happen in the future; he may cheat, he may get sick, he may total the car. All of those stressful situations will be made worse because there is the imbalance of large debt between you. Having known women that stayed in bad relationships because of money as well as women that walked away from relationships responsible for their husbands debts you really don't want to be in either situation. This is his problem to solve and asking you to take on his debt indicates he thinks the car is more important than your relationship. What do you think?
posted by saucysault at 10:30 AM on April 23

follow-up from the OP

Thanks for all the responses so far. I would like to add a few things to help clarify, and redirect some incorrect assumptions.

I understand the concerns about the future, and its totally reasonable to expect that anything can happen (including this horrible financial situation outlasting us all), but I can assure you at this point, the two of us are in a healthy, committed long-term relationship. My bf is taking full responsibility and actively working towards correcting his past bad decision in entering into the horrendous loan. He did not ask me to put this on my CC, or any such thing. He doesn't want to burden me, nor do we have any desire to create co-dependencies of any sort. The CC thing is an option only I thought of, and am running by the MeFi hive, because both of us are unable to get approved for a loan together (despite our high credit scores and excellent payment/lending histories...banks just simply aren't lending).

We are three people openly and amicably working on solving a problem. Bf really does have his life together, and his payment history with both me and his ex of several years adds to my trust in him, not to mention his expert handling of the emotional complications that have arisen between all involved. Like I said, we are in this together, for the long haul. If I can help, I will. Judgement and critique of his past decisions, and suggestions for me to tell my boyfriend to 'grow up' really do not help. He has spent years diligently crawling out from his debt and repairing his credit score. We are stuck right now, due to the inability to procure a loan, hence the seeking of crazy-sounding alternatives. That said, I really appreciate the informative responses about why the credit card route is a bad idea. I will not be doing that. However, wfrgms suggestion of trying to get a loan entirely on my own, and co-signing on the driving policy, is possible (even though it does in a certain respect, recreate the dependency that we are trying to avoid, especially if bf and I break up). But it is highly unlikely that I will get approved, due to my student status. He will definitely not get approved on his own, nor does he have a credit line or % rates that allow him to put this on his CC. He/we are open to alternative solutions that would allow us to do the legal and moral thing; the lending library mentioned above will be looked into, thanks.

zippy: I am still a student; generally you begin paying back your loans starting 6 months after you graduate (2 years from now for me). My small student loan debt (and student status) was part of the reason that we've been rejected by the bank and that's why I mentioned it.

Also, I am confused at the many suggestions to sell the car. How would this help this situation? He would still have to find a way to assume/pay-off a massive loan (the crux of the problem), and would still need to have a reliable car. Also noteworthy is that the loan holder (Ex) lives on the East Coast, and the car/us are in CA.

Thanks again hive!

posted by jessamyn at 2:40 PM on April 23

Thanks for the follow up. But my response still stands--especially given your stated desire not to have "co-dependencies". Nothing you said makes me think it is a good idea for you to get financially involved in this in any way. I think the best thing you can do is be supportive and help him devise creative methods on ways to solve the problem on his own.

Here are some other options.

He can get a second job with all proceeds to go to paying off the car earlier. It will suck for awhile, but desperate times call for desperate measures.


He and the ex can check with the lien holder to see if she can sell him the car and let him assume the loan obligations. I doubt the lender will go for this but it might sweeten the deal for the lender if she agrees to stay on as a co-signer. She would be INSANE to do this, but this allows her to get her name off the car.

I agree that selling at a loss does not make sense, unless he has (or can find/make) the money for the deficiency. Then he can take public transportation or buy a clunker to get around in until he is on his feet on his own. I am sure this is not a preference, but "desperate times" and all that...responsible adults sleep in the beds they made, even when they don't like it.

You haven't stated how far under water he is on this deal, but if it is just a few thousand bucks, it won't take too long to save this $
posted by murrey at 3:38 PM on April 23

I'm sorry if it seems we are all piling on you but I think a few of us have been burned by the old "put your name on the paper and I'll pay it off, baby" line. Okay, I still think you assuming his debt is a terrible idea although I am glad to hear there is no pressure from him. The only thing I could think of that may help assumes you are living together. If so, both of you get another part-time job (since you are a student I bet you could be a tutor). See if his student loans could be deferred due to financial hardship or if he enrols in one online part-time course. Sell everything you have of value (if you have two computers, sell one etc). For the next year both of you live off what YOU make - you pay everything, rent, food, utilities. Every penny he earns goes to paying off the loan. Even if he is only making $20,000 a year it will not take that long to clear it off. As soon as it is paid he should be able to return the favour and have you live rent-free for an equal amount of time.

The suggestion to sell the car would give him a a large amount of cash to pay off most of the loan (you of course would have to front him the money to buy the car in the first place). He can work another job to earn the money to pay off the rest of the debt to you. That solves the problem of him owing a debt in someone else's name. Then he can work on getting a car in his own name. Around here there are used car dealerships that will sell to almost anybody with a pulse (yes, the rates are high but at least the car would be in his own name).

Neither solution is optimal but he isn't in an optimal situation right now anyway and clearly this situation is causing both of you major stress.
posted by saucysault at 1:04 AM on April 24