Balance Transfer Benefit?

[Anonymous]

I've never done a balance transfer (Discover) and am hoping to get some advice.

I'm in the market to purchase a new vehicle and I'm trying to compare padding my down payment with $3000 balance transfer (0%/12mos/4% fee). If I assume a 3.5% loan, I get that I'm losing when compared to the 4% fee over a single year. However, Discover's tool calculates potential savings against the same time frame (1 yr vs 1 yr). What I'm uncertain on is how to compare it to rolling that balance transfer into a 60 month loan. 

Any guidance, on how to better understand the trade offs?

Thanks in advance!

JP

[Revelate]

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@Anonymous wrote:

I've never done a balance transfer (Discover) and am hoping to get some advice.

I'm in the market to purchase a new vehicle and I'm trying to compare padding my down payment with $3000 balance transfer (0%/12mos/4% fee). If I assume a 3.5% loan, I get that I'm losing when compared to the 4% fee over a single year. However, Discover's tool calculates potential savings against the same time frame (1 yr vs 1 yr). What I'm uncertain on is how to compare it to rolling that balance transfer into a 60 month loan. 

Any guidance, on how to better understand the trade offs?

Thanks in advance!

JP

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Straight loss imo.  4% now >> 3.5% over time.  Hard pass from me, and you can probably do better than 3.5% currently on an auto loan with even average credit.  Also have to factor opportunity cost for completeness and even just throwing it into the S&P 500 over time is probably better than 3.5%... I know I'm breaking that rule currently in my own life but I also have escrow and PMI penalties on the new mortgage and those add up to something more than my 3.46% APR for the top 15% of that debt for me.

Inflation works against savings, but the opposite is true for debt.  Debt is correspondingly cheaper as time goes on, and inflation hasn't turned negative and probably won't even from COVID (supply side shortgages on some goods) and as such this still holds even in this crazy time.

Now if you get a 0% fee balance transfer and a promotional period with an interest rate less than your outstanding debt APR, that's a potential easy win and I was trying to set myself up for that in the future but it's been a challenge trying to get some things setup with my moving.  May just need to try again in half a year or may just say it's pointless anyway if I continue to throw money at debt, but 4% fee is flatly bad math unless you're refinancing much more expensive credit card debt and that's what they're for, not for your situation.

[Anonymous]

Yeah that makes sense.

Thanks for the food for thought.

[Anonymous]

If the BT didn't have the 4% fee I'd say it might be good. On the other hand you'll also have to consider the amount of said BT, and whether you can manage paying it back within the 12 months in addition to the car payment. Because in order to make the down payment worthwhile, it in theory should cover the cost of depretiation from driving off the lot that day. 

Depending on the amount you BT, it will considerable increase your car payment for the first year. For instance if you borrow $3K your payment on the BT would need to be $273 month for 11 months. Something to keep in mind when "borrowing" a down payment.

[Anonymous]

A better thought process and analyzing may be better AFTER purchasing the car.

Then if possible, you could BT an amount to yourself and pay down the loan.

This would also help with score raise after lowering outstanding debt.

Jumping into something before knowing the loan details may or may not be a bad decision.

There are normally much better BT offers out there, have to look or wait until they fall into your lap.

NFCU always has 0% fees, and currently offering 15 month at 0%.

One could cash advance or charge a card and then BT it over.

Played out correctly and perhaps only a few cents/dollars paid in interest.

A few others normally at 2% BT fee

[ChazzieT]

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@Anonymous wrote:

...if you borrow $3K your payment on the BT would need to be $273 month for 11 months.

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^This. In the described scenario, you would come out significantly ahead by avoiding the BT and just paying an extra $273/month on your car note.

[M_Smart007]

@Anonymous^^^^^^^^^ +1