0% interest $100K loan for a year?

Ahren before you sign or agree to anything I would like to hear your thoughts on the following: How does a company make money by letting you hold $100K of their cash at a max cost of $75 for one year?

-HW "Skip" Weldon Columbia, SC

I agree with Skip's suggestion. This is too good to be true. Even with a well-established account and good credit score, I don't see you getting offered more than $15-$25K max, and that is only because they think you won't pay it back with the given time period so they can start charging you a high rate of interest. After all, what credit card comes with a $100K credit limit? (unsecured personal loan).

No, much better and safer than that would be a 13-month CD at 6% APY. You can take care of the extra month, right?

-Mark Bole

Since it's a credit card, they figure you won't have the discipline to pay the whole thing off in a year and then the interest rate kicks in and then they make their $$. Isn't that how CC companies make most of their money?

Obviously, it's not a great business arrangement for them if I pay the balance off after 12 months and they only make $75. Statistically, most people that take out cash advances don't though and then they pay big interest.

I know one of the keys to these deals is to not charge anything else on that card since the composite interest rate goes up on the total balance regardless if you pay the original $100K off after 12 months. This is in the fine print of their agreements - also a very big trap for average consumers.

Ahren

HW "Skip" Weld> On Sun, 8 Oct 2006 18:06:39 -0500, snipped-for-privacy@gmail.com wrote: >

Keep in mind that from the link Elle posted

will likely impact your credit score, the exact amount I cannot say.These are the components of the credit score; * 35% punctuality of payment in the past (only includes payments later than 30 days past due) * 30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits) * 15% length of credit history * 10% types of credit used (installment, revolving, consumer finance) * 10% recent search for credit and/or amount of credit obtained recently

It would appear the 30% for 'capacity used' will take a hit, as a $100K credit card taken out and maxed up is a negative. Depending how many other accounts you have, the length will get averaged down some. And the last two factors will also be impacted. I don't know where you are in your borrowing life (need for mortgage, car loan, etc.), but this transaction has the potential to impact 4 of the 5 FICO factors.

I'd be very curious to see if you pulled your score before and after, what the true impact was. JOE

[...]

Also, I forgot to mention you will probably have to make minimum monthly payments on the initial cash advance, even you don't charge anything else and even if you are not being charged any monthly finance charges.

-Mark Bole

I did that once; transferred $10000 of other debt that my wife had run up (and cancelled those other accounts) to a 0% card for a year introductory rate. No transfer fee. I made minimum monthly payments for a couple of months, then started making big payments to pay the thing off by the time to 0% ended.

A couple of things to watch out for:

1) Make your minimum monthly payments 2 weeks in advance so you have confirmation that the payment cleared *before* the due date so you can still intervene if it doesn't. Or make electronic payments. They are counting on you being late with one payment somewhere along the way (1 day late, or even less is enough. If your payment gets there too close to the due date, they might hold it until it's late and then process it) One late payment probably puts the account into default and the rate immediately goes to 29.99%. 2) You must have a zero balance on the account before you take the cash advance, and you must not charge anything on the account until the cash advance loan is paid off. All payments are first applied to the part of the balance with the lowest interest rate. That means you'll be paying interest (21%?) on any purchases until the 0% is paid in full. However, check the agreement very carefully. You may have to actually use the card every month during this period to keep the 0% introductory rate, if so, use the card lightly and the interest you pay on the purchases is just a cost you incur as part of your scheme.

Be careful. You are playing with sharks, or snakes, or something like that. They are probably better at the game than you are.

Bob

I've never done a single one for $100k before, but right now, I have about $50k in 0% balance transfers scattered across several cards. I picked up 5 new cards recently for the 0% promo offers, and all 5 of them are at > 90% utilization (the money is tucked away earning 5.25% for me until it's time to pay them back). I have several other cards totaling about $35k in credit lines that are at 0% utilization, the two rewards cards that I'm using right now for daily expenses (paid off every month), a mortgage and a HELOC at 0% utilization.

Getting the 5 new cards dropped my FICO score from 807 to 763. I've been doing this for a while now, and getting my score back into the 800+ range is just a matter of shifting the BT money back to pay off the credit cards and waiting a couple of months.

While it's like picking up free money laying on the ground, naturally I don't recommend this for anyone who doesn't keep meticulous records or who doesn't have iron-clad control over their spending. One mistake, and it can all come crashing down.

One mistake like the person is laid up in the hospital for a couple of weeks and misses a payment? It may sound improbable for you, but my point is that life can and does happen to people and the best laid plans don't run the way they should. No way I'd do this deal. It's not worth the hassle for a few bucks.

That's what automated payments are for! ;-)

You're right, though. It's not for everyone.

It's more than a few bucks. If it's not too good to be true and he doesn't make any hideous mistakes, it's going to net him 5k+ in a year that he otherwise would not have. I'd do it in a second. The worst case scenario, he doesn't lose the 5k, because he still has the money in a MMF. If something happens and the rate shoots up, he pays it all off immediately. He's only out a few hundred dollars at worst, and is more likely still positive unless it happens right away.

Michael

[...] If it's not too good to be true and he

In pre-tax dollars, of course. YMMV.

-Mark Bole

One person I know has paid down 30K on his mortgage. He tends to roll things to a new card, etc. 3 years now with a series of zero interest deals. Not a bad way to earn a positive return after tax.

Alternatively he can use a HELOC above his 1st if he finds that there are no good options for further transfers. Or he could do a refinance with a new first if he starts early enough given the time line.

Everyone else has pointed out that you need to pay attention to the details (timing & fees).

John Corey

Hard money lender to real estate investors

Lenders do this based > So I have a credit card company that wants to give me a $100K cash