"Charge" Your Car?


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Taking Over Payments

"Charge" Your Car?

I bought a car a year ago and financed it for 60 months (so I have 48 left). This car is financed at a rate 7.5%. I have a credit card with nothing on it and a limit of $15,000. This credit card is offering me a balance transfer rate of 3.99% until paid in full, no annual fee, and a 3% balance transfer fee. Should I transfer the car loan to the credit card or would this negatively impact my credit rating or be a bad decision. Thanks for any input.
Kelly S.

Do You Have the Self-Discipline?

This makes sense only if you have the discipline to keep making "car payments" to the credit card company every month. In other words, if your payment is $400 a month, continue paying that each month. Just send it towards your credit card. Don't cheat! It is also most important not to max out your credit card by doing so. If you are using more than 40% of your available balance, it will negatively effect your credit rating.
Patrice

Go For It!

We did exactly that in February of this year (3.99% rate for the life of the loan on the credit card and 8.5% on the original car loan from our bank). We ended up paying off the amount in a few months, but even if we'd kept paying for two/three more years, we would have saved tons of interest. Do it!
Liz E.

Just One False Move…

NO! If you pay off your car with the credit card, you're asking for trouble. One late payment due to illness, injury or late mail and your rate on your credit card will skyrocket to well over 20 percent. This is not a good deal! We never expect a late payment to occur, but they can and will for many reasons. The credit card companies rarely fix errors if they can be avoided.
Tasha

Know All the Terms and Then Move Cautiously

Be sure to check all terms of the balance transfer offer. The last time I succumbed to an offer like that, I learned too late that I was required to make purchases of a certain amount each month. New purchases were subject to a much higher variable interest rate. Payments were applied to the older balance first, meaning that the new purchases continued to accrue at the higher interest rate. Depending on the terms, this could still save you a little bit. But, frankly, I don't trust the credit card companies; they can change terms at any time. If I were you, I'd pay off my car loan as quickly as possible, and then begin saving to pay for my next car with cash.
Marilyn

Personal Experience Shared

The answer would depend on how disciplined Kelly S. is. We bought a new Dodge truck last year and knew we would pay it off within three months of buying it. Since we got a cash back amount by financing with Chrysler, we did. After the one month required financing, we transferred the remaining balance to a 0% credit card offer (no transfer fee either). I moved the cash we held to pay off the loan into a 5% interest bearing savings account. I still pay the minimum amount due to the credit card so the balance is going down even though the savings holds the full payment (forced savings method for me) and I put a matching car payment into savings for the next "cash" car.

We pay our own homeowners insurance and escrow and use this same method of savings. I have several things to note. Make sure there is no prepayment penalty on the new car purchase. Make sure there are no transfer fees on the credit card. Make sure you can pull the savings money out in time (with no penalties) to pay off the credit card before the interest rate changes and do so (mark your calendar a month ahead).
Debbie & John in Bells, TX

Universal Default Warning

It could potentially negatively impact your credit rating and be a bad decision. The credit card company could review your credit and notice something negative (i.e. late payment) on another card and increase your rate. You could have a nice loan at 3.99% and then it could suddenly increase and you would be stuck repaying it at a higher interest rate.

However, if you did decided to change your car to your credit card, it would save you roughly $650 over the course of 4 years.

Interest Rate

7.50%

3.99%

Loan Amount

$14,560.00

$14,996.80

Months

48

48

Estimate Payment

$352.04

$338.55

Interest Paid

$2,337.92

$1,253.60

Interest Paid on 3.99% Loan

$1,253.60

3% Paid for Balance Transfer

$436.80

Total "Interest" Paid

$1,690.40

Extra amount paid with 7.5% Loan

$647.52

Interest Paid on 7.5% Loan

$2,337.92

Since I am CPA, I used loan scheduling software that my employer has. As a personal note, I had received a similar letter from credit card and turned it down. Even though I would have saved money, I was afraid it cost more in the long run as my interest rate could increase without any prior notice and I would be stuck paying more over the long run.
Michelle in Ponte Vedra Beach, FL

editor's note: Michelle makes a very good point. Many credit card agreements include something called a "universal default" clause www.stretcher.com/stories/07/07jan08d.cfm. In simple terms, it says that if you're late on any of your credit cards that they can raise your rate to a "penalty rate," which often runs up to 30%! So if your payment on any credit card is just one day late, you could suddenly be looking at an outrageous payment. If you're unsure if the account has a universal default clause, either read the credit card agreement (yes, I know it's a bunch of legalese) or call the credit card company and ask them.

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