Yes! Car Loan Paid off by Free Money from Credit Card!!

You know, that isn’t a bad idea. We have about 5 grand left on one of our auto loans, and while the rate is good, now that the cash sitting at the bank is making even less, it might make sense to find a 0% card and do the same.

I remember I did similar thing a while ago.

But from now on I am going be more be cheaper: I am thinking about buying only used cars from now on, because I heard an old saying “when one drives the new car off the lot, he/she is losing thousands of dollars”

I guess I’m a little confused. How is your car loan paid off, when you simply transfered the debt to the Citi driver’s card? Moreover, although you were paying $640/mo, you will now have to save or pay $1700/mo in order to pay off the citi driver card in 10 months before the 0% promo ends (remember the promo started when you got the card, not when you got the BT, at least this is my experience with the 6 citi cc 0% promos that I have taken). These 0% deals are great and you are lucky that you were able to get the citi driver’s without the fee (there is a 3% no cap fee now); however, there should be a serious caveat to these 0% deals–that is, don’t get drawn in by the 0% if you cannot pay off the amount before the promo date ends.

i’m sure you’ve already done the math and can afford to pay the $17k in 10 months; otherwise, you’ll be paying interest on $10,600 ($17k-($640*10)) for much longer and at a much higher interest rate (i.e. default rate after 0% promo ends) than the original car loan that would end in may 2010. this is based off of the original $640/mo car loan payment.

Right Tim, this would only work if you have the money in the bank already, or will have the means to pay it off before the interest kicks in.

It is just transferring funds around, but instead or earning -4.9% on the loan and maybe 3.8% on the savings, leaving you with a net return of -1.1%, you can effectively use the 0% money to give yourself a +4.9% return, let your cash sit in the bank and still earn 3.x% and pay it off in full in 10 months or slowly over time.

Either way, instead of a 1% loss, you’re going to end up somewhere between a 5-8% gain with this method depending on how you structure the repayment.

I totally agree with Tim. Sure, you “paid” off your car, but you just moved the debt around. And like he said, if you can’t pay off the car by the time the promo ends, your efforts will be completely destroyed by just a few months of interest on that money you transferred. Stupid in my opinion. That is why I take these blogs with a grain of salt.

Jeremy, I understand the concept. it only works if you have the ability to pay off the entire amount within the promo period. Sun emailed and clarified that the cash to payoff is already in reserve, in which case the point is moot. of course if i had the payoff cash in reserve, i would only pay minimum each month rather than the regular car payment of $640/mo in order to maximize the 0%; however, sun wrote he is going to continue $640/mo towards the cc.

i have also rolled money into 0%, but at a certain point, especially now that savings interest rates are low, i can’t see continue doing arbitrage or bouncing debt around, although I have no debt.

Great post. We offer similar advice on our fresh finance blog

Great post, we just did the same thing except we don’t have the money to pay off the loan. However, we will by the time the balance transfer becomes due. Until then we will collect payments in our savings account while it accumulates interest.

I am looking at it as a free $500 or so to put towards our debt.

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