Should I refinance my car loan on a credit card?
I just bought a new set of wheels. I financed it through Toyota
Finance, a $31,000 principal over 5 years at 6.45%. I am pretty happy with
that interest rate, and my intention was not to accelerate the payments on
the loan, as I am trying to save money for a downpayment on a house.
But I am getting about two offers per day for credit cards, which are
promising me a 0% intro rate for 12 mos, give or take. I am tempted to
apply for one of these cards, and transfer the amount of 12 montly payments
(about $7500) from the car loan to the credit card, then make payments on
the credit card in order to have it paid off by the end of the intro rate.
Some quick figuring says that this will save me about $250 in present value
of interest payments. Not bad for 1/2 hour of paperwork and phone calls.
Actually, I could get more aggressive than that and transfer more than 12
months of payments. I would depend on having access to intro rates on other
credit cards as the intro period expired, but in my experience this is a
good bet... I get enough junk mail offers on these every day. I would save
more than the $250, at the obvious price of some refinance rate risk.
And then there are other CC offers for a 3.9% on all transferred balances
until paid off in full, no time limit as long as the minimum payments are
made.
Clearly I would have to have the discipline to pay this balance off before
the expiration of the intro rate, or this will backfire, But... how bad do
people think this will look on my credit report? Keep in mind that a house
purchase is probably over the next twelve months. I have no debt except for
the car loan, and one credit card which I have paid off every month for
about two years. On my credit report I also do have a rather large amount
of paid off historical debt, mostly school loans, an auto loan, and credit
cards when I used to carry a balance several years ago. No late payments on
any.
Is it worth the $250, or am I doing that at a larger expense to my credit?
-Make sure that the balance transfer would be at the 0% for 12 months, no fees.
It isn't unusual to get "as low as 0% for as long as 12 months", wording that
has so much weasel room that they could give you 20% for 1 month before going
up and still meet the wording, or wording like "those who don't qualify for the
platinum will be issed the gold, copper, or lead card if they qualify" and thus
end up with terms far different than what the mailings implied.
Be sure all payments are on time. It isn't unusual for a late payment to cause
your credit card to cause the interest rates to jump to the low 20%'s to mid
30%'s. Some credit card issuers even monitor your credit report for _any_ late
payments and start rate jacking as soon as a late payment shows up on your
credit report. (If you consider that there are errors in the credit reports of
about a third of the American adult population, it isn't out of the realm of
possibility that someone else's late payment may wind up on your credit report,
thus causing you to lose the 0'% rate for no fault of your own.) I have even
heard of the dirty trick of not sending a statement so there would be a late
payment and thus justification for rate jacking. (This is especially true of
some of those 6-month or 9-month purchase "same as cash" where the late payment
would put the last payment beyond the "same as cash" period and interest is
retroactively applied.
-If everything goes just right, you may save the $250. But if anything
hic-ups, you might miss the plan, and end up with your car sitting on
a very expensive credit card. Is this risk worth the $250? Thats your
call.
A better question is why you bought a car that you couldn't afford
to pay for? If you had the cash, you would have no loan. If you
had to get a loan, you should have gotten something that you could
pay off in (3) years, something that cost far less than this luxury
car.