This isn't exactly property related, but i have built up my deposit and want to keep to use it in the future, but i need to replace my clunker and don't want to touch my cash…
I have applied for a new credit card hopefully with a fairly large limit and my thought was that i would try and buy the whole the thing on the credit card and then swap it over within 55 days to a no or small interest cc for 12 months… i also get 16000 qantas frequent flyer points for taking out the cc and then another 20000 for the purchase which is the eqivalent of a return flight over east or up to bali from perth which is a nice little perk…
i called a car yard to ask if i could buy a car with a credit card, they said for visa and mastercard it would be about a 2.2% fee but why would i want to?? to me i am thinking 2.2% of $20k is $440 which is little more than a loan establishment fee at most banks anyway (plus the $95 fee for the credit card)… i then plan to balance transfer across to like i said a low or no interest credit card for the next year ot two to pay it off… its just a matter of getting the right credit limit on the intial and then follow up card(s) as well, but seeing i have no debt, earn a good wage, pay little rent and have over $20k in the bank i figure they will give me a decent credit limt…
does any of the finance guys see a problem with trying this??? any fees or charges or hassles that i am not taking into account???
Can't say I'd be taking this approach.
Look at two things:
Firstly, this business about buying the car on the credit card for the frequent flyer points: you've worked out that the 2.2% transaction fee equals about $440. Would the frequent flyer points you earn from this transaction get you a flight that would have cost you $440 in real dollars? Or are you spending $440 in transaction fees to get yourself a free flight that you could have bought with cold hard cash for a lesser amount?
Secondly, I do feel you're a bit insane with the plan of buying a car and then paying credit card interest fees on the debt. Is there a reason why you cannot use your liquid cash as a deposit on a property, wait for 6 months or whatever till the property grows in value, and then take out a line of credit against the property to buy the car? The interest rate on the LOC (line of credit) would surely be less than that of a credit card….
That's my 10c worth. Let's see what the finance folk say.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Most of the 'low rate for balance transfer' type credit cards only offer a discounted interest rate for 12 months at most. After 12 months the rate reverts to the standard rate, which could be 12, 14, even 16% or higher. Can you pay the balance off inside 12 months?
I think it sounds ok IF (and it's a big if) you can pay it off befor the interest rate reverts to traditional credit card rates. Otherwise, you would be better off getting a traditional car loan, if you don't want to touch your deposit money.
JacM, no you never buy stuff to earn frequent flyer points solely as its usually always cheaper to buy the thing direct…. i'm saying its a nice little bonus on the side….
as for buying some property, i'm not 100% sure its exactly the right time to buy in at present…. it doesn't sound like there is going to be much appreciation in 2011 (unless u buy very astutely) with more interest rates rises to come etc so just not quite ready to buy in at present… it could easily be that houses in Perth might continue to drop over the next 3-6 months which would negate any savings in terms of buying a car using that strategy…
as for cc calculations, doing a quick calculation at ANZ site a car loan at 11.99% for two years will cost me $2,600 interest… if i take that out to 5 years it will cost me $6,635 or over 25% of the of the original loan… now if i buy my car and then balance transfer wihtin 55 days to say an ANZ low rate mastercard that has a 2.9% interest for a year with a fee of $58, while at the same time i am keeping my over $20k (and growing by anywhere from $500-1000 a fortnight in a high interest savings account at 6% pa (even taking into account losing 30-37% on tax)) that looks to me effectively like almost no interst at all accummulating on the $20k debt…
the money i earn on interest by having it in the bank might even work out to be more and so i'm ahead on the arrangement and leaves my lump sum in there already sufficient to act as a deposit on the type of property i am looking at should it suddenly become available and continuing to grow a bit with a savings history so i could jump on any opportunity that came up… after 12 months i can find another low interest credit card to balance transfer it over to but i will already be paying the loan down as there is usually a 2% a monthly repayment requirement….
anyway just a thought about using the banks terms to try and get some quite cheap credit…. i have read elsewhere about using such a plan for other types of investments as well…. so not just for cars etc…
Dan42, paying it off inside 12 months would be pretty tough, not impossible, but tough…. if for any reason i couldn't balance transfer to another low rate cc for another 12 months when the deal came towards its end i would probably try and take a personal loan out for the rest of the time… even then, the interest saved paying 1 year of the money off at 2.9% rather than 11.99% would mean i would probably come out ahead???
but the plan would be to find something cheaper amid the myriad of card deals out there… i am just wanting confirmation that these balance transfers don't have some big fee or charge that they don't advertise, is it just a nice smooth transfer over and you pay out the old card and start fresh with the new card after paying an opening fee….
casanovawa wrote:Dan42, paying it off inside 12 months would be pretty tough, not impossible, but tough…. if for any reason i couldn't balance transfer to another low rate cc for another 12 months when the deal came towards its end i would probably try and take a personal loan out for the rest of the time… even then, the interest saved paying 1 year of the money off at 2.9% rather than 11.99% would mean i would probably come out ahead???Yep, you're probably right, as long as you pay off a decent amount in the first year. And you're right, there are plenty of options out there to transfer to another low rate card after 12 months. It makes sense to me, if you are disciplined enough, and it sounds like you are.
I've done the balance transfer thing a couple of times, and I haven't found any hidden fees. I haven't been charged anything when closing a credit card account.
I've purchased 2 cars on credit cards. Firstly, you don't want to pay the fee – naturally. So don't mention it to the sales person. Go in there and negotiate. Tell them you can pay in full straight away. When it comes down to paying just hand over the card. They will protest and say you need to pay the fee and you say, no that is ok I will come back next week when I get the cash. They won't want to lose a sale so will give in and say you can have it today with no fee.
I purchased a $20k car on one card and then transferred it to a new one with a 2.99% balance transfer rate for the live of the transfer.
Its a bit of a hassle and risk, but can be done.
Also watch out as it hurts your serviceability.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry, that's a good idea about trying to avoid the fee and will try it, the only thing is if i bargain with the car yard (or several car yards to get the best package) i would want the RAC to come out and check the car before i finally bought it on maybe the next day… i was going to stipulate on the contract "conditiional on it receiving a satisfactory assessment"…..
hopefully they would still go for the credit card payment with no fee if i said i agreed to buy the car if the report was satisfactory the following day or else yes i would walk away and come back later or maybe go somewhere else… not quite the same leverage though… did u go for the atuo check or just buy it there and then?
Hi Cas,
I sold cars for 7 years, and Terry is right… most car yards will waive the cc merchant fee to do business. Wouldn't recomend buying a 20 grand depreciating aset but… i used too
As for keeping your leverage, do a deal subject to 'green light independant inspection' (racv/nrma,raa) and CC settlement terms, and you won't loose out. No dealer will be tempted to agree to terms if you take the deal for 'there and then' off the table.
Just my advice,
Good luck. BTW what Car did you have in mind? small or large? Don't forget about new as there may be a way for you to claim depriciation if you use it for investment work!!
Regards,
Dave
Hi Dave… Yeah i know the depreciating asset thing, but the only thing worse than the depreciating bit is paying high interest on something devaluing… if i can at least save half the equation… :o) and thanks for that advice, this is getting better with all the tidbits i am picking up… i am a pretty crappy negotiator so i am going to look at three potential cars hopefully at different car yards and hopefully let them play off against each other in terms of the best package… give them one day or so to come up with the best deal they can do and send offers to me, i will then come look at the best and hopefully arrange an inspection next day…. i think i will just miss the end of month thing as it will probably be later this week or next week i do the deal, so will be a new sales month for them…
have contacted the perth RAC and gotten the average price for a 3-4 year old car with between 45k-65k km on the clock, so that gives me a bit more ammunition in terms of what they say (think its the red book) the price i should be looking at… i was originally thinking cheaper with mitsubishi 380, but then it climbed to 2007 VE commodore and the longer i have thought about it its now gone up to a 2007 VE SV6… :o) i kept my old car for like 9-10 years so i guess i got pretty good value out of it…. and buying second hand should hopefully reduce the drive the new car out of the lot and lose $3-4000 straight away thing….. plus at like $35k and up i couldn't afford a new SV6 anyway…. i don't really do much driving for work as usually take department cars out to events and all…. thought about maybe salary packaging but think this low interest rate arrangement on cards will probably end up with me forking over the least amount i'm thinking???
Why would you do this when you can buy a new car on a 2.9% interest rate according to Toyota's advertising on TV
http://www.toyota.com.au/finance/toyota-finance-advantageHi Cas,
I would strongly advise against getting them to call you after a day or so with their best price. Why? for one, they won't do it (most dealers refuse to fax quotes) and you will loose your leaverage. And shopping on used cars is an unknown variable ie, klms, condition, previous owner with any three of those factors fetching a premium and being different from yard to yard. Make a spread sheet, with color, kms, previous owner (strongly avoid ex rental or ex gov cars!!!!) condition and price, when you find one that ticks all or most of the boxs, make your move.
What would I do? find the right car that fits all the factors including budget. Then negotiate hard with the dealer and 'Do not leave the premises' until you get what you want. If they won't budge, by all means shop around. The best deals are always done face to face, if this is new ground for you… congrats because it will make you stronger and build your negotiation skills.
When you have found a car you like, ask the saleman for time alone to inspect it , check it out and (look for log books) think of questions to ask. Invite him/her over to then answer you questions. Ask for a test drive alone, because if you can limit your time with the saleman/woman you wont like them as much and wont trust them as much and make it easier to negotiate with them. When you get out of the car, if your happy with it. Tell them you would like to discuss figures, and if the price is right you will consider doing business on your terms.
I think you know were im coming from. Happy hunting and good luck. Be confident, friendly and assertive and you can't go wrong.
Let me know how it goes.
Regards,
Dave
Thanks Dave, will think all those things through…
And Duck, that sounds like an ok offer but not really wanting a Toyota (sure they are good and all) and not wanting to shell out for a new car…. so this strategy suits me more… but for someone else the Toyota would probably be good…
Worst idea ever unless you can pay the money back in 55 days before the interest kicks in.
Never spend a cent on a liability if you can help it.I borrowed put $6gs on my credit card to buy a car only because I knew I could pay it off in the 55days. I needed the vehical to generate income. And $6G was was $4G more than I wanted to spend
98 model.A nice new car always sounds like a great but buy a model thats two years old would be a better idea to save cash.
Last tip would be forget the car and buy property mate.
g0biin wrote:Worst idea ever unless you can pay the money back in 55 days before the interest kicks in.
Never spend a cent on a liability if you can help it.I borrowed put $6gs on my credit card to buy a car only because I knew I could pay it off in the 55days. I needed the vehical to generate income. And $6G was was $4G more than I wanted to spend
98 model.A nice new car always sounds like a great but buy a model thats two years old would be a better idea to save cash.
Last tip would be forget the car and buy property mate.
The original poster has said he IS looking for a second hand car.
And buying property is great, but how will he go to inspect property if he doesn't have a car to drive there?
g0b, I think the worst idea would be to flush the money down the toilet, so buying a car rates somewhere above that… :o)
For various reasons i am wanting to buy a property in WA which will most likely be my PPOR for at least a time until i move out and convert to an IP or buy another IP once equity has been built or another deposit saved, so not able to look for the best performing markets around all of Australia to purchase in, want to be closeto work etc… the figures for october say that house prices in perth dropped 1.8% and units 3% and have been on the slide for the last couple of quaters, this is before the double wammy of interest rate rises in November which i can't think is going to increase the punters confidence, this bodes well potentially for people that want to buy into the market but i think it has a bit further to go until at least Feb when the market might pick up if its not hit with another rate rise, so at present for the next several months at least i don't want to jump into the market….
I am at a point where parts of my present '98 model car (that i have had for 10 years and got my moneys worth out of ) are not working that well and are starting to cost me money, plus life has to have a few other enjoyments than just living in bricks and mortar… when i add all that up, i think buying a nice second hand car, for the best deal i can, armed with a strategy to get credit that will cost me almost nothing (taking into account cash not directly paid on it for how ever long i choose to not pay off the debt will be sitting in a higher interest bearing account than the low interest rate on the credit car so it will probably actually earn some small amount of interest even after tax in net terms) seems to add up… the type of car is my choice which is part rational calcualtion with a bit of emotional satisfaction thrown in…
the deposit will be there ready to jump in whether i see a place that suits me in 1 month or 6 months and then the debt (which will be being paid down already) can quickly be paid down as required… its not a car OR property strategy, its a strategy to get both at the right time… so plenty of worse ideas out there i think… :o)
The only concern I would have with this strategy is you are banking on your ability to get a second card to transfer the debt from the first card.
I am unsure how the financial institutions would rate you getting a card and maxing it out (or close to it) in a relatively short period of time and then applying for a new card?
Have you previously had credit – even though you have a job and savings, if you have limited credit history, I would be suprised if they provided such a large amount on an initial credit card.
Just my 2 cents.
vj, we will find out, but my thinking would be that i have a pretty decent credit history (have paid off several loans) and seeing that i would be swapping one debt for an equal amount and so my credit/debt situation would not be changing (i could then close or majorly reduce the credit limit on my first card)… i guess its just up to them to assess how much of a risk i am seeing i have enough cash to pay it off in the bank, no debt, low rent and reasonably high 5 figure salary… and for them the plus side that i won't be able to pay it off in the 12 months of 2.9% interest or whatever and that they can then role me over into a 14-18% credit card rate on what is left of the debt… seems not a lot of risk to them…. but again we shall see…
98 model.
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