Large Purchase: Credit Cards vs. Personal Loans?

[greenpang]

To finance a large purchase ($20K), I previously believed a personal loan would be necessary. However, now having learned more about credit, I'm starting to think that using credit cards may be a better option.

Let's assume I want to make the $20K purchase in July 2013 (with increased scores and CLs) and pay it off over the next 48 months. I could likely get a loan with a 3-4% APR.

Or... I could do something along these lines:

7/2013: Open new credit lines with introductory 0% APR for 12 months: say, Citi ThankYou Preferred and Citi Dividend. Hope for 10K CLs on each; if short, DH can open them too. Make the $20K purchase, split up between the new Citi cards. Pay off 1/4 of the $20K balance over the next year, leaving $15K by the end of the intro 0% APR period.

7/2014: Open Chase Slate (DH open another Slate if CL <$15K). Transfer $15K balance to Slate(s) and continue to pay over the 15-month 0% APR period, leaving $8750 when it expires in 10/2015.

10/2015: Open Citi Diamond Preferred. Transfer $8750 balance to Diamond and pay that off completely over the 18-month 0% APR period.

Provided Chase is still offering the 0% BT fee in 7/2014, that means the only financing fee I'm paying is the BT fee for transferring the $8750 to Citi Diamond Preferred: 3% fee for a grand total of $262.50 cost of financing $20K over 4 years!

If I took out a personal loan for $20K with a 3.5% APR for 48 months, I'd pay a total of $1750 in financing charges. So the credit card BT plan seems like a better option.

Am I missing something? Is it reasonable to plan to self-finance a large purchase with the intention of opening new BT cards until it is paid off? If so, why ever choose a personal loan over this method?

[greenpang]

Let's assume I want to make the $20K purchase in July 2013 (with increased scores and CLs) and pay it off over the next 48 months. I could likely get a loan with a 3-4% APR.

Or... I could do something along these lines:

7/2013: Open new credit lines with introductory 0% APR for 12 months: say, Citi ThankYou Preferred and Citi Dividend. Hope for 10K CLs on each; if short, DH can open them too. Make the $20K purchase, split up between the new Citi cards. Pay off 1/4 of the $20K balance over the next year, leaving $15K by the end of the intro 0% APR period.

7/2014: Open Chase Slate (DH open another Slate if CL <$15K). Transfer $15K balance to Slate(s) and continue to pay over the 15-month 0% APR period, leaving $8750 when it expires in 10/2015.

10/2015: Open Citi Diamond Preferred. Transfer $8750 balance to Diamond and pay that off completely over the 18-month 0% APR period.

Provided Chase is still offering the 0% BT fee in 7/2014, that means the only financing fee I'm paying is the BT fee for transferring the $8750 to Citi Diamond Preferred: 3% fee for a grand total of $262.50 cost of financing $20K over 4 years!

If I took out a personal loan for $20K with a 3.5% APR for 48 months, I'd pay a total of $1750 in financing charges. So the credit card BT plan seems like a better option.

Am I missing something? Is it reasonable to plan to self-finance a large purchase with the intention of opening new BT cards until it is paid off? If so, why ever choose a personal loan over this method?

[Hightechredneck]

Depends on what your "large purchase" is. If it's real estate, it a bad idea from a tax standpoint. Sounds more like a car. If it's a car, there are a lot of 0% financing out there so it would make little sense to do it.

[greenpang]

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@obageegee wrote:

Depends on what your "large purchase" is. If it's real estate, it a bad idea from a tax standpoint. Sounds more like a car. If it's a car, there are a lot of 0% financing out there so it would make little sense to do it.

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Neither; just retail. The store only offers 12-month interest-free financing.

[bs6054]

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@greenpang wrote:

To finance a large purchase ($20K), I previously believed a personal loan would be necessary. However, now having learned more about credit, I'm starting to think that using credit cards may be a better option.

Let's assume I want to make the $20K purchase in July 2013 (with increased scores and CLs) and pay it off over the next 48 months. I could likely get a loan with a 3-4% APR.

Or... I could do something along these lines:

7/2013: Open new credit lines with introductory 0% APR for 12 months: say, Citi ThankYou Preferred and Citi Dividend. Hope for 10K CLs on each; if short, DH can open them too. Make the $20K purchase, split up between the new Citi cards. Pay off 1/4 of the $20K balance over the next year, leaving $15K by the end of the intro 0% APR period.

7/2014: Open Chase Slate (DH open another Slate if CL <$15K). Transfer $15K balance to Slate(s) and continue to pay over the 15-month 0% APR period, leaving $8750 when it expires in 10/2015.

10/2015: Open Citi Diamond Preferred. Transfer $8750 balance to Diamond and pay that off completely over the 18-month 0% APR period.

Provided Chase is still offering the 0% BT fee in 7/2014, that means the only financing fee I'm paying is the BT fee for transferring the $8750 to Citi Diamond Preferred: 3% fee for a grand total of $262.50 cost of financing $20K over 4 years!

If I took out a personal loan for $20K with a 3.5% APR for 48 months, I'd pay a total of $1750 in financing charges. So the credit card BT plan seems like a better option.

Am I missing something? Is it reasonable to plan to self-finance a large purchase with the intention of opening new BT cards until it is paid off? If so, why ever choose a personal loan over this method?

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Well, you need bigger CLs, if you had a $20K charge on a card with a $20K CL, your scores would go way down, making it hard to get the next card.   To me, the risk is that there may not be 0% cards (and not 0 BT fees) cards available when you need them.   APRs could be very high. 

Of course, if you have a variable rate loan, the same thing can apply, but you can get more control when you apply for a loan now, compared to having to apply for a credit card in an unknown (see fiscal cliff!) environment one and two years from now.

[bs6054]

Let's assume I want to make the $20K purchase in July 2013 (with increased scores and CLs) and pay it off over the next 48 months. I could likely get a loan with a 3-4% APR.

Or... I could do something along these lines:

7/2013: Open new credit lines with introductory 0% APR for 12 months: say, Citi ThankYou Preferred and Citi Dividend. Hope for 10K CLs on each; if short, DH can open them too. Make the $20K purchase, split up between the new Citi cards. Pay off 1/4 of the $20K balance over the next year, leaving $15K by the end of the intro 0% APR period.

7/2014: Open Chase Slate (DH open another Slate if CL <$15K). Transfer $15K balance to Slate(s) and continue to pay over the 15-month 0% APR period, leaving $8750 when it expires in 10/2015.

10/2015: Open Citi Diamond Preferred. Transfer $8750 balance to Diamond and pay that off completely over the 18-month 0% APR period.

Provided Chase is still offering the 0% BT fee in 7/2014, that means the only financing fee I'm paying is the BT fee for transferring the $8750 to Citi Diamond Preferred: 3% fee for a grand total of $262.50 cost of financing $20K over 4 years!

If I took out a personal loan for $20K with a 3.5% APR for 48 months, I'd pay a total of $1750 in financing charges. So the credit card BT plan seems like a better option.

Am I missing something? Is it reasonable to plan to self-finance a large purchase with the intention of opening new BT cards until it is paid off? If so, why ever choose a personal loan over this method?

[kevinjjc]

I'm wondering where you can get an unsecured loan with a 3-4% APR.

[Walt_K]

You're going to have multiple maxed out cards so you may find it more difficult to get the second round of cards for BT. Though that may not be an issue if you split it up where you get first cards and spouse gets second.

[greenpang]

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@kevinjjc wrote:

I'm wondering where you can get an unsecured loan with a 3-4% APR.

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Maybe you can't and the APR would be even higher. As my planned purchase is 6 months away, I haven't looked into loans in great detail yet. So if the rates would be even higher, it seems like my intended BT plan may be a viable option. In the event that 0% cards are not available a few years down the line when I need them for BT, I could resort to a loan at that time to pay off the cards.

With regard to the concern that I'd be unable to acquire the new 0% BT cards if my utilization on the initial cards was too high, perhaps teamwork could come into play there. DH and I could switch off which one of us was applying for the BT cards based on this factor.

[greenpang]

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@Walt_K wrote:
You're going to have multiple maxed out cards so you may find it more difficult to get the second round of cards for BT. Though that may not be an issue if you split it up where you get first cards and spouse gets second.

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We mentioned this at the same time!

[bs6054]

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greenpang wrote

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In the event that 0% cards are not available a few years down the line when I need them for BT, I could resort to a loan at that time to pay off the cards.

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That's the problem.  If 0% cards are not available, it's probably because the economy has tanked and we are in a credit squeeze.  So you may not be able to get loans, and have to pay off the balance at the non-intro rate on the card, or you will get one but at a much higher rate than you could now.

OTOH, if things are really bad, the interest on your purchase might not be the most pressing issue!

[kevinjjc]

Check out Northwest Federal Credit Union. Anyone can join by paying a one-time $10 fee to join the organization FAN (Financial Awareness Network). Also, as with all CU's, a minimum opening deposit into a Share Savings account is required to establish membership -- $5 for NWFCU.

https://www.nwfcu.org/loan-rates

Loan Type          Term                             APR* as low as

Personal            up to 48 months         7.00%
                             60 to 84 months        10.00%

This is the lowest rate that I could find for an unsecured signature loan.