Using a 0% interest credit card to pay the difference between our trade-in and a used car?

July 18, 2007 5:18 AM

Using a 0% interest credit card to pay the difference between our trade-in and a used car?

I've been entertaining the idea of paying the difference between our trade-in and a used car (about $2400) with a 0% interest credit card and paying it off by making monthly payments of $200 for the first 12 months (0% rate lasts 15 months.)

I know about the risk of the interest rate going up if we are late on any payments, but I am confident that will not happen--we have auto draft on all of our bills and carry no other credit card balances. I am pretty organized and stay on top of our finances--I don't make late payments.

The car we are considering has fairly high mileage which means the interest rate we would get on a car loan would be pretty high.

Am I missing any red flags as to why this might be a bad idea?

posted by saucy to work & money (8 comments total)

As long as you are committed to paying off the credit card under the 15 months, then no negatives seen here.

Emergencies: What if you need the cash for something else? Could this be a problem or do you already have an emergency fund?

Alternative: How about paying yourself the $200 for the next year and then using that money plus the trade-in to find a car next summer?
posted by TauLepton at 5:23 AM on July 18, 2007

No.

Using a credit card to buy a car (or any part of one) is merely an auto loan with a different name. And, no lien against the car!

Of course the down side is that usually credit cards have rates even WORSE than auto loans, which are not exactly choice products themselves most times. Looks like you've found a loophole though, and understand the potential pitfalls.

Just ask yourself before you start: in case something went wrong, would you be able to pay a portion of that amount (say half) immediately, and/or put up with the 20+% interest rate for a few months? If not, maybe best not to risk it. If so, why not?
posted by rkent at 5:26 AM on July 18, 2007

I've used an interest-free card or two to get out of (and into) many situations with no problems at all. As soon as I pay off the debt, I cancel the card. Once, when the interest-free period expired, I got another interest-free card and transfered the debt. FYI I'm not some sort of card-weilding maniac - I had minimum debt (now none!), I just wanted to have more cash available for some time and this sort of card really did help me out.
posted by mateuslee at 5:56 AM on July 18, 2007

I've done this before, and it worked fine. I think the thing you need to have thought through is what happens if the car, after six months, needs a bunch of really expensive work done? Where will that money come from? You don't want to be in a position of not being able to get the needed work done, or to have to chose between paying the car debt and paying for the car repairs.
posted by Forktine at 6:08 AM on July 18, 2007

Although to be fair, these "what if you run into problems later??" scenarios, including mine, would be just as much of a problem with ANY financing option, not just the card.
posted by rkent at 6:17 AM on July 18, 2007

I use 0% financing deals all the time; most of them involve getting a credit card for the goods/services involved and so are very similar to what you plan to do. It is definitely doable, but you need to have a good deal of financial discipline to make sure you don't get hit with accumulated interest charges; some lenders will dump the zero percent rate and charge interest going back to the day of the original purchase after even one late payment, so read the fine print. Then, don't wait until the last minute to pay the thing off (I see you plan to pay it off three months early-good idea). I generally set up automatic payments via Quicken or online banking and send them in early enough that their receipt is confirmed before the due date on the payment. And as others have stated, I have a cushion of money in savings so that any unplanned expenses will not stop me from paying for my 0% purchases. So far I have not had any problems after buying home theater equipment, furniture, appliances, tires, a lawn tractor, and numerous other things this way.
posted by TedW at 6:23 AM on July 18, 2007

You'll want to make sure you don't need to use the card for anything else. (Not sure if you were talking about a card you already have or a new one.) Generally your payments go to the lowest interest portion of the balance first. So if you buy anything else with the card, there will be no grace period and interest will keep accumulating on that part of the balance until you fully pay off the 0% portion.

This is one of the catches of 0% balance transfers--people think they can transfer a balance and also use the card for other things, but they don't realize that there's no way to get the high interest rate purchases off the card without paying off the balance transfer first.
posted by mcguirk at 7:48 AM on July 18, 2007

Thanks to all of you for the comments. You've given me the little push I needed.
posted by saucy at 6:03 PM on July 18, 2007