@digitek wrote:
@Anonymous wrote:
@Anonymous wrote:
@digitek wrote:
@NRB525 wrote:
@digitek wrote:
I must be missing something here. You're in excellent financial shape from what you've written. I can't see a reason why you wouldn't just buy the bike out right in cash. Why bother with this strange 0% BT stuff?
Credit is a financial tool. When a bank offers no fee to make a loan, and no interest charges for a year, that is a free tool you can utilize.
Sure, OP could probably pay with cash, but using this loan puts a balance on a card, and reflects in monthly payment experience over the 12 months. As a way to continue building a strong credit profile, with no interest cost, it has value as a strategy.
Let's get something straight right away, you are stretching this right here. The advantage to putting this motorcycle on a 0% BT card over paying in cash is that it would give him 12 months of positive credit history on a card? He can do that without putting a single dollar on a 0% BT card or actually borrowing a single penny.
There is a reason banks give out 0% BT offers to pretty much anyone who will take one, it is an obvious trap that they hope you fall into.
The only real and tangible benefit I could see to doing this is that it would allow him to keep his money for 12 months instead of using the banks. If that money was invested in something with a guaranteed return over 3% then he would be making whatever the difference is over that 3%, because inflation is about 3% so after a year he ends up buying power neutral.
Still not sure why he wouldn't use the money he saved up for and has in his hand, and instead get a loan from a bank which carries all kinds of risk and contracts and goofy stuff.
I am sorry, but the benefit I see to doing this is almost completely negligible or fabricated, only reason I can see to actually do this is if it is some kind of risky deal and there is a chance you'd default and the bank would eat the loan instead of you, because the 0% BT thing is really just transferring risk to the bank, but they'll want their money back in one way or another...
Definitely not fabricated, negligible is going to be dependent on the individuals personal circumstances. I ran numbers through a generic calculator and found that by using a 0% interest free year on a $5k bike a person will save $92.56 compared to my 3.4% loan. If that $5k is real and is deposited into a high-yield savings account at 1.45% then he would see another $72.98 in interest. Combined, that's a total of $165.54 by simply making different money decisions, and those numbers can swing pretty wildly in either direction out in the real world.
I personally like free money and whenever there is a zero percent rate I try to take advantage of it if the math supports it. It doesn't always make me a millionaire but if it buys a few tanks of fuel or a nice dinner then I consider it a win.
Exactly! I'd also earn 2% on the purchase with the original CC. Now I'm curious; would a BT count as spending on the new card (for the purposes of a sign up bonus)?
I appreciate a good math session, but I think you're off again. First, you are not getting 3.4% loan, you are paying cash in hand so you are not saving any money at all by getting a 0% BT for 12 months, you aren't paying interest on any loan at all. Second, you are right, a high yield savings account is about 1.45% at most, but you are forgetting that inflation is roughly 2% a year so you are actually LOSING out on about .5% of actual purchasing power by the end of that 12 months (no kidding your money is worth 2% less every 12 months due to inflation).
Also, yeah you can get 2% cash back if the card offers it, but like it has been mentioned several times, there are some places that will not accept credit cards, or if they do they will charge you the rate that the payment network/cc charges them. A motorcycle dealership is likely one of those places that will make you eat the cost of that CC transaction, they don't calculate into the asking price like everywhere else because they just don't accept them.
Do what you want, but I am just pointing out that this forum is a little bit obsessed with credit. I see no reason to risk borrowing money from a bank for this.
Going by the logic here, I should put everything on a 0% BT card? Why stop at a motorcycle? It's an interest free year long loan, right? I should do this for all my expenses and purchases?
Yeah, I kind of assumed that you would blow right over my statement that says it can vary wildly in either direction. Much like trying to peg inflation at 2%, which varies widely by year, there is no possible way that I can give exact numbers in all of this because the situation can be different at every step.
My point in adding in the 3.4% loan is due to the earlier part of the conversation where I mentioned it. It is simply there as an example of the miniscule amount of money that it could cost, if chosen as an option, and how that miniscule amount of money can factor into the math in the larger sense. You don't need to like that it's there but it's there for a reason. Hypothetical situations are discussed hypothetically.
Going by the logic here yes, in most situations you should go with the 0%. Whether that's a BT or an introductory rate is irrelevant, it's a free loan that leaves your money open to do other things with. Your scenario of spending the money instead of carrying the balance loses the full 2% due to inflation (by your numbers) whereas mine only loses .55%. Free money for doing literally nothing other than making a logical decision based on math.
There are definitely plenty of people that shouldn't use BT or 0% offers, mainly those that don't have the cash in hand to pay it off before interest begins to accrue and those that have no financial discipline. There's nothing wrong with spending the cash instead of using the free loan, it just doesn't make much sense fiscally if it's someone with a plan and discipline. Even if the money literally did nothing other than accrue interest in savings, that's free money that will continue to exist there the moment you settle the debt.
I once used a 0% cash advance to buy stock that quadrupled over the year. If I have the cash to cover it and it's offered I will take the 0% every single time, no questions asked.
