How do I get a loan for cheap/free?
February 16, 2011 12:48 PM Subscribe
How do I get a loan with no interest? I was thinking that I could buy an item on my credit card and then turn around a sell the item. As long as the credit card was 0% for 12 months then it seems to me that would be a free loan. The only question then would be 'What item could I buy that could be sold for as close to the purchase price as possible?'
Also, are there any other ways I could get a no interest loan? I was thinking I could put the money into a brokerage account and earn interest off the money - then pay it back at the end of the year.
Generally that 0% for 12 months is on a balance transfer, not on purchases, and you'll have to pay a balance transfer fee of $75 or 5% of the balance, whichever is greater. Which basically means it's not a free loan, and will certainly be more than you can make in a relatively safe investment account.
In general, banks are not in the business of giving away money, so I'll be very surprised if you find any way of making this work.
posted by Grither at 12:53 PM on February 16, 2011 [2 favorites]
In general, banks are not in the business of giving away money, so I'll be very surprised if you find any way of making this work.
posted by Grither at 12:53 PM on February 16, 2011 [2 favorites]
If this were easy to do, and foolproof, everyone would be doing it. That everyone is not doing it should be a significant signal.
Yes, you can do it via the means you discuss. However, that assumes you will get back the purchase price of the item (not going to happen in most cases), or that your brokerage account will earn a meaningful return (which is probably not going to happen either).
There is, of course, the not-so-small matter of fees, restrictions on what exactly "0%" means, and so on. Go for the arbitrage schemes if you like, but recognize that this will be far more difficult than you think and if you are not careful you can find yourself losing surprising amounts of money.
posted by aramaic at 12:58 PM on February 16, 2011
Yes, you can do it via the means you discuss. However, that assumes you will get back the purchase price of the item (not going to happen in most cases), or that your brokerage account will earn a meaningful return (which is probably not going to happen either).
There is, of course, the not-so-small matter of fees, restrictions on what exactly "0%" means, and so on. Go for the arbitrage schemes if you like, but recognize that this will be far more difficult than you think and if you are not careful you can find yourself losing surprising amounts of money.
posted by aramaic at 12:58 PM on February 16, 2011
You might find some useful schemes on the FatWallet Finance Forum. If there's a way to do something like this that works, someone there has already found it.
posted by rhiannonstone at 12:58 PM on February 16, 2011
posted by rhiannonstone at 12:58 PM on February 16, 2011
Not a direct answer to your question, but I remember a few years ago, a US mint was selling dollar coins at cost with free shipping; so people were buying the coins in huge quantities, and then turning around and depositing them into their banks, thereby getting free credit card points and possible a free 30-day loan on the money.
It only lasted a short while before they realized what they were doing.
posted by thewumpusisdead at 1:04 PM on February 16, 2011
It only lasted a short while before they realized what they were doing.
posted by thewumpusisdead at 1:04 PM on February 16, 2011
People do this all the time, while keeping the item. Let's say there's a big ticket item that you're buying anyway - like a TV / a bed / sofa that you need. You're buying this from a furniture store and they give you a "don't pay for the next 12 (sometimes 15) months" deal. Assuming that you already have the money on-hand for the item, you can then proceed to throw that money in a GIC, get the loan for the item, then take the money out of the GIC at the end of the 12 months and pay the loan off.
What you are proposing is to sell off the item you're going to buy. If you can get a really good furniture deal at a store, you might be able to do this; I've only known people who has done this with items they were planning to keep.
(my DH was a furniture salesman and he has seen people doing this every time a store gives a 0 interest credit deal.)
posted by Sallysings at 1:17 PM on February 16, 2011
What you are proposing is to sell off the item you're going to buy. If you can get a really good furniture deal at a store, you might be able to do this; I've only known people who has done this with items they were planning to keep.
(my DH was a furniture salesman and he has seen people doing this every time a store gives a 0 interest credit deal.)
posted by Sallysings at 1:17 PM on February 16, 2011
Looks like you could buy an Apple computer when applying for a certain credit card and get 0% interest. You could probably resell that for pretty close to sticker price.
posted by ghharr at 1:18 PM on February 16, 2011
posted by ghharr at 1:18 PM on February 16, 2011
I would think that buying something on 0% credit and selling it for anything less than what you will eventually pay for it is in some way actually paying a kind of interest on the "loan" (the interest being the difference between the buying price and selling price)
posted by edgeways at 1:23 PM on February 16, 2011 [2 favorites]
posted by edgeways at 1:23 PM on February 16, 2011 [2 favorites]
Call your credit card provider and request checks. I did this once years ago because I was in a pinch, and ever since then, every couple months, I get checks in the mail with offers like "0% interest on the funds from this check for 6 months" and the like.
And I'm sure you already know this, but using credit cards in this way is a dangerous, terrible idea that gets lots of people into lots of money trouble. But...er...well, I've done this before in tight times and lived to tell about it.
posted by angab at 1:42 PM on February 16, 2011 [1 favorite]
And I'm sure you already know this, but using credit cards in this way is a dangerous, terrible idea that gets lots of people into lots of money trouble. But...er...well, I've done this before in tight times and lived to tell about it.
posted by angab at 1:42 PM on February 16, 2011 [1 favorite]
There are also various manner of 0% arbitage schemes floating around out there, assuming you can find a 0% card these days without picture perfect credit (or at all).
Generally that 0% for 12 months is on a balance transfer, not on purchases, and you'll have to pay a balance transfer fee of $75 or 5% of the balance, whichever is greater. Which basically means it's not a free loan, and will certainly be more than you can make in a relatively safe investment account.
T.D. Strange and Grither are both correct in that there is issue with trying to pull the arbitage. Basically it breaks down like this:
You get a credit card with x limit, let's say $10,000.
Drop that $10,000 into some type of investment, make interest for a year.
When the real interest rate on the credit card is going to kick in, move the $10,000 back into the credit card, zeroing it out, and take the interest.
In 2000-2005, some people did this to great success due to a mixture of factors.
1. $0/0% balance transfer fees. This meant once you started, you could just keep moving the debt year-to-year.
2. Lots of offers of 0% interest credit cards for a long intro period, some were up towards 12-18 months.
3. Very large credit limits being offered. My parents once informed me that they ($100k/year combined) had credit limits totalling $250K, and got offers constantly for cards of $50K, once even getting the infamous "no limit" card.
4. Interest rates on money market accounts were paying 3-4% in traditional banks, and the newly formed (at the time) online banks were up to 4-5%.
Some people managed to rake in $25-30K a year just off of playing arbitage.
Why this no longer works:
1. Balance transfer fees of 3-5%. This means it's very hard to get away with this year-to-year as the credit card companies got wise to people jumping between credit cards. The 3-5% fee is enough to discourage the arbitage, but not enough to discourage those who are trying to get less interest and pay off cards legitimately.
2. Fewer offers of 0% cards. Unless you have a credit score into the 700's or better, you don't get 0% cards anymore.
3. Much lower credit limits being offered, $10-25K instead of $25K-100K.
4. Interest rates on savings, money markets and CDs are virtually zero due to the Fed. Fed interest rate near zero means savings rates near zero. After checking online, about the best rate you will get is 1.2% annually.
Remember, history tends to repeat itself, so it could very well be possible that in a few years or more down the road that conditions would be right for the arbitage to work again, but it won't happen right now.
I would use the zero percent wisely. Think long and hard before you buy something, and make it something you really really want or need. I got a very nice computer and a lot of tools last year on 0% for 12 months, and have paid it just like a loan, with my last chunk coming up next month. My remaining credit card debt is getting a balance transfer (3%) so I can save roughly $300 over the next six months in paying it off. My next big run will be on furniture for when I move, but again, all planned and budgeted for on 0% interest.
posted by Mister Fabulous at 1:44 PM on February 16, 2011 [2 favorites]
Generally that 0% for 12 months is on a balance transfer, not on purchases, and you'll have to pay a balance transfer fee of $75 or 5% of the balance, whichever is greater. Which basically means it's not a free loan, and will certainly be more than you can make in a relatively safe investment account.
T.D. Strange and Grither are both correct in that there is issue with trying to pull the arbitage. Basically it breaks down like this:
You get a credit card with x limit, let's say $10,000.
Drop that $10,000 into some type of investment, make interest for a year.
When the real interest rate on the credit card is going to kick in, move the $10,000 back into the credit card, zeroing it out, and take the interest.
In 2000-2005, some people did this to great success due to a mixture of factors.
1. $0/0% balance transfer fees. This meant once you started, you could just keep moving the debt year-to-year.
2. Lots of offers of 0% interest credit cards for a long intro period, some were up towards 12-18 months.
3. Very large credit limits being offered. My parents once informed me that they ($100k/year combined) had credit limits totalling $250K, and got offers constantly for cards of $50K, once even getting the infamous "no limit" card.
4. Interest rates on money market accounts were paying 3-4% in traditional banks, and the newly formed (at the time) online banks were up to 4-5%.
Some people managed to rake in $25-30K a year just off of playing arbitage.
Why this no longer works:
1. Balance transfer fees of 3-5%. This means it's very hard to get away with this year-to-year as the credit card companies got wise to people jumping between credit cards. The 3-5% fee is enough to discourage the arbitage, but not enough to discourage those who are trying to get less interest and pay off cards legitimately.
2. Fewer offers of 0% cards. Unless you have a credit score into the 700's or better, you don't get 0% cards anymore.
3. Much lower credit limits being offered, $10-25K instead of $25K-100K.
4. Interest rates on savings, money markets and CDs are virtually zero due to the Fed. Fed interest rate near zero means savings rates near zero. After checking online, about the best rate you will get is 1.2% annually.
Remember, history tends to repeat itself, so it could very well be possible that in a few years or more down the road that conditions would be right for the arbitage to work again, but it won't happen right now.
I would use the zero percent wisely. Think long and hard before you buy something, and make it something you really really want or need. I got a very nice computer and a lot of tools last year on 0% for 12 months, and have paid it just like a loan, with my last chunk coming up next month. My remaining credit card debt is getting a balance transfer (3%) so I can save roughly $300 over the next six months in paying it off. My next big run will be on furniture for when I move, but again, all planned and budgeted for on 0% interest.
posted by Mister Fabulous at 1:44 PM on February 16, 2011 [2 favorites]
1. Become a citizen of Texas
2. Enroll in a Texas College
3. Qualify for a Texas Grant after the institution's funding has run out for the year
4. Get a Texas B-On-Time Loan!
It's 0% interest, and if you graduate in a timely manner they will forgive the entire thing!*
(and if not, it's still a 0% interest loan) :)
*forgiven loans count as taxable income :(
That's all I got
posted by battleshipkropotkin at 1:58 PM on February 16, 2011
2. Enroll in a Texas College
3. Qualify for a Texas Grant after the institution's funding has run out for the year
4. Get a Texas B-On-Time Loan!
It's 0% interest, and if you graduate in a timely manner they will forgive the entire thing!*
(and if not, it's still a 0% interest loan) :)
*forgiven loans count as taxable income :(
That's all I got
posted by battleshipkropotkin at 1:58 PM on February 16, 2011
Mister Fabulous' answer above is a pretty good rundown of why this kind of arbitrage used to work and why it doesn't work anymore. One further reason why it worked before was that you could apply for many credit cards on a single day (known as an App-o-rama) and they would all be approved, taking advantage of the fact that it took a while for the new accounts to show up in a credit report. Also one hidden risk that people didn't count on was the fact that keeping track of all those accounts is relatively difficult and one missed payment can negate any profit made in the scheme.
Assuming you have a high enough credit rating to get a 0% card, your better chance of getting free money would be to sign up for a cash back rewards card and get 1%+ back on anything you charge. If you really find something that you can sell used for the same price you bought it new (very unlikely), that would give you about as much profit as you would get from putting the equivalent amount of money into your bank account for a year.
posted by burnmp3s at 2:25 PM on February 16, 2011
Assuming you have a high enough credit rating to get a 0% card, your better chance of getting free money would be to sign up for a cash back rewards card and get 1%+ back on anything you charge. If you really find something that you can sell used for the same price you bought it new (very unlikely), that would give you about as much profit as you would get from putting the equivalent amount of money into your bank account for a year.
posted by burnmp3s at 2:25 PM on February 16, 2011
You're not going to get 100% of retail when you resell anything (unless it's some limited-edition thing like super-special sneakers). That's why this plan is the equivalent of the perpetual-motion machine.
posted by Sidhedevil at 3:05 PM on February 16, 2011
posted by Sidhedevil at 3:05 PM on February 16, 2011
Don't forget that you have to pay tax (I assume - I guess it depends on your income level) on the interest you would earn. So even if the interest charged by the credit card is lower than the interest promised by your brokerage account, you need to make sure it is sufficiently lower to make up for the amount lost to taxes.
posted by lollusc at 4:47 PM on February 16, 2011
posted by lollusc at 4:47 PM on February 16, 2011
Actually, dollar coins are still available at face value from the US Mint for free shipping. There are limits on how many you can order, and (anecdotally) some banks take issue with mass quantities of deposits while others take 'em without blinking. I believe the current limit is 4 boxes ($1000) every 10 days. I have never had any problems depositing rolls of dollar coins in $500 batches but I've only done it a few times.
One or two credit cards are reported not to earn points for these purchases but those are pretty small exceptions. More information available at Flyertalk and Fatwallet if your'e interested.
posted by QuantumMeruit at 5:52 PM on February 16, 2011
One or two credit cards are reported not to earn points for these purchases but those are pretty small exceptions. More information available at Flyertalk and Fatwallet if your'e interested.
posted by QuantumMeruit at 5:52 PM on February 16, 2011
I agree with what's above, particularly that 1%-5% cash back (higher numbers on very limited quantities) is likely to earn more money. I would caution that I recently read my three rewards cards' rules and at least two exempted "cash equivalents" (and now I know why!) so definitely read closely before trying the dollar coin thing.
posted by salvia at 9:25 PM on February 16, 2011
posted by salvia at 9:25 PM on February 16, 2011
Sidhedevil is right - look at the prices of used cars. The only way this will work is if it's limited edition, and even then you're gambling significantly - mass market things are now extremely collectable whereas many things sold in limited edition often fail to fetch their resale price on eBay. Unless you know a market very well I would be very wary of this.
I've been decluttering things for a few years now and things that I paid £100 for sold for £10. It's not a reliable way to make money unless youy have a lot of time to spare or the expertise to buy cheap in one place and sell high elsewhere.
posted by mippy at 8:10 AM on February 17, 2011
I've been decluttering things for a few years now and things that I paid £100 for sold for £10. It's not a reliable way to make money unless youy have a lot of time to spare or the expertise to buy cheap in one place and sell high elsewhere.
posted by mippy at 8:10 AM on February 17, 2011
This thread is closed to new comments.
There are also various manner of 0% arbitage schemes floating around out there, assuming you can find a 0% card these days without picture perfect credit (or at all).
posted by T.D. Strange at 12:53 PM on February 16, 2011