Balance Transfer to Avoid Credit Card/Car Finance Interest?

Hi OzB,

My wife and I are looking to get a new car soon as our current car is starting to fall apart. We’ve spent a fair bit on repairs the last few years and have had another mechanical problem pop up recently.

The car we are looking to purchase is ~$47000. We should be able to pay $17000 cash, and put the rest on a credit card with a limit of $30000

This credit card has a 2 month interest free period, and we wouldn’t be able to pay this off in that time frame without selling some shares, however, paying $30000 off over 12+ months is very doable for the both of us.

Which brings me to balance transfers - I didn’t even know until recently that these credit card balance transfer offers were a thing, and seems that some have little or no fees, and give you 12+ months to pay it off. Assuming that we have no issues getting approved for one of them, this would mean a more affordable repayment plan of $2500/month for 12 months, instead of having to cough up $30000 over 2 months.

Given my situation do you think charging our current card $30k, then applying for a balance transfer would be a good option for us? Have we overlooked some sort of catch? Also, maybe a dumb question, but is there any kind of requirement to cancel our current card after doing a balance transfer?

Thanks in advance.

Comments

  • +1 vote

    There's usually fees when paying with credit card, still the better option.

    then applying for a balance transfer

    You apply for a credit card, and you get to transfer a certain amount onto it. But say if you only got approved for a $15k credit card, I think they'd let you only transfer something like 80% of your approved amount.

    Some credit cards have balance transfer fees.

    •  

      Thanks for the info.

    • +1 vote

      Fee to pay for car using credit card then fee for balance transfer. Maybe ask bank for bigger home loan and fix at 2%

      • +1 vote

        Fee to pay for car using credit card then fee for balance transfer

        4% fees right there, but if he still think he is better off than selling the shares, then he should pay the fees.

  • +6 votes

    Buying a car with credit card/car finance is a very bad decision.
    How about just buy a used car with $17,000 cash you have now ?

    • +3 votes

      Some people can't help themselves and have to keep up with the Joneses.

      •  

        $47k obviously not the price of a Camry.

        •  

          SL 2.5 hybrid CVT - $46,990

          •  

            @whooah1979: Bog standard hybrid is like $35k? $12k of the $30k problem solved with a jedi mind trick.

    •  

      The issues we currently have with our 2012 car have been expensive to repair and has left a bad taste in my mouth, so would like to have a bit of peace of mind with a 7 year new car warranty with Toyota.

      We don’t have any issues paying for the car outright, but the angle for my original post (and I could be missing something completely obvious here) was more along the lines of: if there’s no interest on the balance transfer card and we have a year or more to pay that off, I can then leave my cash in stocks/investments working.

      •  

        7 year new car warranty with Toyota

        Only 5 years.

        •  

          7yrs on engine/drive-train (provided genuine parts are used during servicing)

      •  

        if there’s no interest on the balance transfer card and we have a year or more to pay that off

        Except you have 2% credit card fee from dealer, 1-2% balance transfer fee from most cards and the possibility that your income will not support an extra credit card with $40k limit which you will need to do a $30k balance transfer.

        Offsetting this will be some credit card points that might be worth around 1% of the transaction value.

        Honestly I'd just redraw any money you have in your offset, or if you don't have money in your offset put money in there before buying a $47k car.

  • +1 vote

    put the rest on a credit card with a limit of $30000
    we wouldn’t be able to pay this off in that time frame without selling some shares

    Ohhh, boy.

    •  

      Better get ready to call the finance 🚑.

      Next Thread from OP: Need help to pay off $30K loan on a LYI Vehicle.

      •  

        What is LYI?

        • +2 votes

          LYI = low-yield investment.
          As opposed to a fresh-faced investment analyst's designated high-yield investment vehicle such as a Mercedes Benz GLC Coupe, C class coupe, or CLA/ Audi S3.

          •  

            @Thrift: Oh yes you found the original post.

            I wanted to re-read the "want to impress my boss sections"

          • +1 vote

            @Thrift: This HYI story made my day lol

  • +1 vote

    If you are going to throw that much on a credit card, make sure it has some other perks, like frequent flyer points…

    And does it need to be a $47,000 car? Could you get a demo version or a year or two older version and save even more $’s

    • +1 vote

      Noted on credit card perks.

      I probably should have mentioned this on original post, but I have a certain length requirement for boot space in the new vehicle so the minimum size Toyota that meets this is a RAV4 with seats folded. We also need it to be auto as my wife doesn’t have a manual license.

      The base model auto RAV4 is around $39000 drive away in Perth, so the $47000 is definitely for a few extra bells and whistles. Whether it’s $30000 on credit or $21000 on credit, if we have no interest to pay and are able to pay it within the no interest time frame, I was thinking the balance transfer sounded like a good idea.

      Will look into demos a bit more. Asked about it at the dealerships we visited but they were quick to change topic 🧐

      •  

        Will look into demos a bit more.

        You might find some petrol demos, though there won't be huge savings as supply is low for RAV4 currently (4-6 month waits)

        Certainly won't find hybrid demos for sale

      •  

        You can't go with an older model rav4? My gf's 2006 model has racked up 350,000 km's, and still seems to get the job done each year

  • +2 votes

    How much with the car seller charge in CC fees 2%?

    •  

      Thanks, didn’t even think about this.

      •  

        Yep, about 2% is the going rate for Visa/MC

  •  

    You will need to apply for the new card with your current card maxed out.

    What is the plan if you get rejected for the new card? Having a $30k credit card and paying purchase interest for a year or more would be painful

    •  

      I’d prefer not to, but as a fallback I would be able to sell some stocks if this ended up being the situation.

      •  

        If that was the case I would be calculating what the real cost of the car could end up being.

        I.e if you are forced to sell an investment you don’t want to then how much could the car cost, then re-evaluating if it is worth it or not.

        Not that I am condoning purchasing a car on a credit card but a lower risk option would be to swap your credit card to one with zero percent interest on purchases now (before buying the car).

        Then use this card to purchase the car. That removes the risk that you will be rejected for credit after making the purchase

        https://www.finder.com.au/credit-cards/interest-free-period-...

  • +2 votes

    Make sure you factor in price of car insurance into balance transfer/required amount..

  •  

    loans.com.au would have a better rate

    •  

      Can you elaborate? My understanding with some of these balance transfers is 0% interest over 12 months, and $0 setup fees.

  • -2 votes

    OP get insurance now or you'll be banned when you post here saying you hit someone and can't afford insurance.

    Stop trying to look rich by buying cars it's so stupid.

  •  

    maybe get a cheaper car and invest in your future

  • +2 votes

    This is the kind of post I show my kids as an example of poor financial decision making.
    Reasons why this is high risk:
    - living beyond means. Buying a depreciating asset in excess of what can be afforded.
    - committing to finance. Risk if there is a job loss etc.
    - relying on paper wealth, in the form of shares that could swiftly decline
    - time bomb finance, if circumstances change and can’t be paid off or refinanced, very high rates apply.
    - and maybe, not making the most of existing assets by repairing existing vehicle, or at least doing what you can to maximise sale price.

    In the last 12 months we’ve seen real world examples of people being stuffed up because they relied on no job losses etc.

    My suggestions to my kids would be as a lot have said above. Get a cheaper car, avoid finance where you can.

    It is a good one to post on these kind of forums, because financial innovations like balance transfers (or BNPL, for example) open up new strategies, so it is good to discuss what is a good way to make use of them, and the downsides/upsides.

    • -2 votes

      very wise dad(or mom?) you are!

    • +1 vote

      OP has shares he could sell, he just thinks he is better off keeping them

      •  

        Sure, but that decision adds risk, compared to selling them and using the cash instead of debt.
        If the shares go down, OP will have lower valued shares, and debt too. Of course, they might go up.

        • +2 votes

          If the shares go down

          Of course, they might go up.

          Then he'd be better off? So it could be better to keep the shares and use credit card/finance.

          There's always risk investing into shares.

  • +5 votes

    It's kind of difficult to get approval for a new $30K card when you are already carrying a $30K debt … unless you are earning massive money or have to assets to back, I'd request the new card and pre-arrange the balance transfer before I committed to anything, also there are usually limits for balance transfers.

    • +1 vote

      Agreed, just because you have a card now with a $30k limit does not mean a bank will give you another one while the existing one is maxed out.

    • +1 vote

      Thanks. This is the kinda ‘gotcha’ I was hoping to find out about.

      •  

        When I did this, the CC application asked if I was transferring debt over, and closing the old card - so I didn't have any trouble

  •  

    A 2012 car is not that old, if I was in the market for a new car I'd be looking at a car around the same age. How much are you going to sell that for?

    •  

      It’s a 2012 Hyundai i30CW. Was offered $3000 trade in and factored that into the $17000 in original post. Has some mechanical issues so hoping to get $5k+ and selling privately.

  • +2 votes

    If you think you can pay off $30k in 12 months, maybe see if you can get by with the current car then buy in about 12 months time.

    Or if finance is really required for a car, do you have any property equity you can borrow against? Some banks will let you have a separate loan with home loan rates for a short fixed term.

    • +1 vote

      If you think you can pay off $30k in 12 months

      I would like to know where is the $30k from the last 12 months.

      • +1 vote

        Surely in shares? Not every ozbargain poster is financially irresponsible.

        OP is just looking for a way to beat the system but hasn't realised he's going to pay 3-4% extra in fees which will offset the advantage he thinks he's found.

        •  

          Which brings me to balance transfers - I didn’t even know until recently that these credit card balance transfer offers were a thing, and seems that some have little or no fees

          Clearly need to go to Specsavers.

          It is clearly posted 1.5% - 2% fee to pay more than $3k by credit card in dealer manager office where you put your deposit down.

          I don't think I have ever seen a 0% BT in Australia. Maybe low as 1%.

          Surely in shares?

          Then OP would be sitting on a tidy profit if not more given the big drop in Feb / Apr 20.

          •  

            @netjock: "I don't think I have ever seen a 0% BT in Australia. Maybe low as 1%."

            The good old days here on Ozbargain, Citibank used to offer a 0% balance transfer with 6 months interest free (or was it 12 months cant remember) where they would give you an option to draw "cheque to self" which resulted in many (including me) obtaining $20k interest free money that you could used or sit in your Homeloan offset account before paying a cent of fees/interest.

            Ahh, good times.

  •  

    we wouldn’t be able to pay this off in that time frame without selling some shares

    Get a margin loan against it. Check the rates.

  • +4 votes

    Wow. Don't get all the hate about finance. I'm all for promoting living within your means, but living within your means doesn't always means 100% cash purchases. If you can afford to pay off $30k within a year then you can afford a $47k car, geez.

    Regarding the particulars, be warned that increasing your limit I believe will be an inquiry on your credit report, as will applying for the balance transfer card. You also will not know the limit of the balance transfer card until after you apply (and it puts another mark on your file). Then the conditions like 2% transfer fee and max transfer of 80% come into play as noted above.

    I know somebody who used this method to buy a $30k car and pay it off in the year, but you would need to have ALL of your ducks in a row and make sure you have accounted for all of the fees along the way to make sure it is worth your while.

  • +1 vote

    We did this, transferring ~$26k of a car purchase price over to a zero dollar balance transfer credit card deal. We got 0% transfer fee, and 20(?) Months interest free on the transfer.

    We then set up a scheduled monthly payment that paid off the total in 18 months… Easy, with no fees except a $50 annual cc fee.

    To be clear, we could have paid for the car in full from our offset, but there's significant opportunity cost there - interest paid on our mortgage would have gone up.

    The trick is to treat the new CC as a personal loan, with scheduled payments. It's totally fine, provided you and your partner are willing to cut up the card as soon as it arrives - and not use the account for anything else.

    •  

      To be clear, we could have paid for the car in full from our offset, but there's significant opportunity cost there - interest paid on our mortgage would have gone up.

      Don't think your home loan interest rate goes up unless you go into higher LVR and you have to up your loan.

      Home loan interest rates at 2% - 3% you're really only talking about $750pa on $26k even less if you are paying off the principle.

      I guess a squabble over $500 is probably about right given the squeeze of living standards in this country.

      Where as Australians should have enjoyed low interest rates giving people more discretionary income they decided to front load it by giving it away in form of debt to equity swap. Instead of paying more money on interest they are paying the "equity" they have just created out of thin air. Financial genius.