MoneyStuffed

I get asked about this a lot so I thought someone here might be interested in how I paid for my car with a credit card.

Last year when I bought my car, manufacturers were doing lots of low-interest financing options.  For my future car, however, Ford was offering no free lunch.  I could get a low-interest rate from Ford or $2000 in rebates, but not both.

Well, darn it, I wanted both!

I spent a lot of time checking out alternative financing methods and then I got a cash advance check from my First USA (now Chase) credit card in the mail and suddenly the light bulb went on. 

If you know me, you know I don’t trust credit card companies.  They use small print and usually insert lots of loopholes for themselves to have an out on your low interest rate offer.  I made sure I scrutinized every letter of their offer, considering all possible outcomes.  After weighing the offer, I realized it was the best deal I had going for me without opening a new credit card and hoping that their “as low as” and “limits as high as” would end up being good enough to bet on.  With credit cards, it’s much easier to deal with the creditor you know than the creditor you don’t.  I ended up moving forward with the First USA offer.

Once I picked out the vehicle and knew about what I would be paying, instead of writing the cash advance check directly to the dealership, I wrote it out to myself and deposited it in my bank account.  Credit card companies usually put a disclaimer in their cash advance check offers stating that they don’t have to honor your check for any number of undisclosed reasons so I wanted to be sure I had the money before I went to get the car.

Once the money cleared in my checking account, I went into the dealership and was ready to negotiate.  I didn’t have a lot of negotiating to do since I knew exactly what I wanted and a family member’s company owned part of the dealership so I got the “family” discount of getting the vehicle at invoice.

Since I had my own low-interest financing already lined up, I took the $2000 in rebates instead of Ford’s lowest-interest financing.  The dealership, realizing what I was doing, offered me Ford’s other financing package at about 7% for another $500 rebate.  Now, 7% was high, especially back in March 2005, but I thought about it and realized that I could take the 7% Ford financing, the $500 and then pay the car loan off with the money I had in the bank from First USA.  Sold!

The dealership warned me that I had to keep the car loan for 3 months in order to keep the rebate.  I figured that was easy.  I’d pay most of the car the first month to rid myself of most of the subsequent months’ interest charges.  I’d pay a little bit more the second month and then the payoff in the third month.

All of the juggling worked!  I had a little complication with Ford dismissing the 3rd month’s payment on the car without telling me.  I found out by trying to log onto the website to schedule my last payment and they had closed my account, dismissing the last $50 of the loan.  I was worried about how the dealership said I needed to keep the loan 3 months but Ford said they had no such requirement and my loan was paid in full.  Sweet!  Another $50 free!

To lay out what I ended up with:

• 2.99% fixed for the life of the loan interest rate on a First USA credit card
• No transaction fee on the cash advance
• $2000 rebate on the car
• $500 rebate for using Ford financing
• $50 waived from Ford which paid my loan in full
• Car title in less than 3 months

I ended up getting the car cheaper new than I could have gotten a used one-year old model.

It’s 15 months later and now my savings account is earning way more interest than my credit card is charging me on the balance on the car so I’m not really in a hurry to pay it off, although carrying a balance is bugging the heck out of me.  I’ll live.

It’s a little nervewracking doing a juggling act like this.  Some areas you have to watch out for when trying this:

1. Don’t max out any credit card or use a high proportion of your total available credit.  If I didn’t have high limits, I probably would have put only a portion of the car on a credit card and the rest on some other sort of loan.  The higher the proportion of your available credit you’re using, the more of a hit your credit will take when doing something like this. 
2. Check out the transaction fees carefully.  Aim for no transaction fee but if there is one, make sure it has a cap.  Many cash advance or balance transfer checks coming out now state “no maximum”.  Avoid them, if possible.  They may negate the money you’re saving by doing this. (Example:  3% transaction fee with no cap on a $10k transfer would cost you $300, instead of the typical transaction fee which is capped at $50-75.)
3. Make sure you can pay off your balance in the time the transfer is good for.  If you’re not sure, you’ll need to scope out a “life-of-the-loan” advance or be prepared to move your balance to another low-interest option when your time is up.
4. Make sure your interest rate is definite and does not say “as low as”. Verify your interest rate before you actually use the money.
5. Keep an eye out for the Universal Default Clause.  If you’re late with another creditor or your credit takes a hit, the credit card company can put you in default and raise your interest rate to something outrageous like 30%.  If you’re not meticulous with your credit, avoid Universal Default Clauses at all costs.
6. Do not use this credit card until the balance is paid in full.  Any payments will most likely be applied first to whatever balance portion is assigned the lowest interest rate, which is probably your cash advance.
7. Your best defense against the credit card company is to read every word of the offer including every word of the fine print.

Obviously, before doing all this, make sure you’re actually saving money.  My goal was to get a good interest rate and the good rebate in order to get the best possible deal financially.  If you’re trying to decide simply between a rebate or a low-interest rate, Bankrate has a simple calculator to help you figure out which one is the best offer.

If this kind of creative financing interests you, you should check out MyMoneyBlog’s How to Play the 0% APR Game.  Besides just generally being a very interesting money blog, the author has mastered using 0% credit card transfers and cash advances to fund higher-interest savings. It’s very interesting reading!

Is anyone out there playing the balance transfer game?  Any successes or warnings you want to mention?

Related Posts:

• If I Don’t See It, I Don’t Spend It
• Rebadged Vehicle Research Can Save You Money
• Elsewhere in the PF World… Confessions from Car Salesmen
• Capital One’s Lack of Credit Limit Reporting
• Ask and You Shall Receive, Discounts and Reimbursements, That Is

This entry was posted on Tuesday, July 4th, 2006 at 1:00 am by Liz and is filed under Big Purchases, Car Loans, Credit, Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.