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Use balance transfer credit card to prepay car loan?

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Contributor

Use balance transfer credit card to prepay car loan?

I have a car loan of about with the following terms:
About $5000 left from a original principal of about $9800
Payments are about $161, but I started paying $200 the last two months.

Here is my plan:

Find the the best balance transfer credit card offer: $0 balance transfer fee, 0% interest for as long as possible ... at least 12 months.

Assuming, at least 12 months interest free, the credit card would be used to partially prepay  the car loan balance. The amount, in this examble, would be about $2200. This would reduce the remaining car loan principal to about $2800 ($5000 - $2200)after a year and save a interest.

I would, of coarse, repay the credit card each month with the payment I normally use for th car loan.

What are the flaws with this idea? Also, am I correct in assuming that my next car loan payment would be $0 for 12 months since it is prepaid?

Message 1 of 12
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Valued Contributor

Re: Use balance transfer credit card to prepay car loan?


@CueAyZee wrote:

 

I have a car loan with the following terms:
About $5000 left from a original principal of about $9800
Payments are about $161, but I started paying $200 the last two months.
What is the interest rate on loan ?
You are now in the last half of your loan and the majority of interest has already be paid.

The remainder might not be very large depending on you interest rate.


Find the the best balance transfer credit card offer:

$0 balance transfer fee, 0% interest for as long as possible ... at least 12 months.
Some issuers will let you deposit funds into checking so you could use to pay down car loan.

Some require you to have a balance on another card to payoff.

Need to apply only for cards that will let you deposit to checking or pay down an auto loan.

 

What are the flaws with this idea?

Only certain cards will work and

this will only work if you car loan pushes out due date, which most do not.

 

Also, am I correct in assuming that my next car loan payment would be $0 for 12 months since it is prepaid?


 

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Message 2 of 12
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Re: Use balance transfer credit card to prepay car loan?

Depending on the CL, you could end up with high utilization on the BT card which could impact your credit scores, if that matters to you.

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Loans: Prosper (20k/3yrs 7.14%), Lending Club (10k/3yrs 5.89%), Chase car loan (35k/6yrs 0.9%)
Message 3 of 12
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Established Contributor

Re: Use balance transfer credit card to prepay car loan?

You still have to make payment to car loan in most case regardless large early "payment"
You have to make payment to credit card also. if you can not payoff in 12? Month, i bet int will be higher than car loan
Usually it's more trouble than it worth unless your car loan interest is very high (ie in double digits)
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Message 4 of 12
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Re: Use balance transfer credit card to prepay car loan?


@Kforce wrote:

@CueAyZee wrote:

 

I have a car loan with the following terms:
About $5000 left from a original principal of about $9800
Payments are about $161, but I started paying $200 the last two months.
What is the interest rate on loan ?
You are now in the last half of your loan and the majority of interest has already be paid.

The remainder might not be very large depending on you interest rate.


Find the the best balance transfer credit card offer:

$0 balance transfer fee, 0% interest for as long as possible ... at least 12 months.
Some issuers will let you deposit funds into checking so you could use to pay down car loan.

Some require you to have a balance on another card to payoff.

Need to apply only for cards that will let you deposit to checking or pay down an auto loan.

 

What are the flaws with this idea?

Only certain cards will work and

this will only work if you car loan pushes out due date, which most do not.

 

Also, am I correct in assuming that my next car loan payment would be $0 for 12 months since it is prepaid?


 


 

Message 5 of 12
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Super Contributor

Re: Use balance transfer credit card to prepay car loan?


@CueAyZee wrote:

I have a car loan of about with the following terms:
About $5000 left from a original principal of about $9800
Payments are about $161, but I started paying $200 the last two months.

Here is my plan:

Find the the best balance transfer credit card offer: $0 balance transfer fee, 0% interest for as long as possible ... at least 12 months.

Assuming, at least 12 months interest free, the credit card would be used to partially prepay  the car loan balance. The amount, in this examble, would be about $2200. This would reduce the remaining car loan principal to about $2800 ($5000 - $2200)after a year and save a interest.

I would, of coarse, repay the credit card each month with the payment I normally use for th car loan.

What are the flaws with this idea? Also, am I correct in assuming that my next car loan payment would be $0 for 12 months since it is prepaid?


Why would you want your next 12 payments to be $0? If anything, I would want to continue my car payments so the car is paid off a year early. So if you were going to do this, I would see if I could pay the principal down to $2.8K, not prepay the car note. By prepaying, you’re paying interest unnecessarily. 


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Message 6 of 12
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Re: Use balance transfer credit card to prepay car loan?


@CreditInspired wrote:

 

Why would you want your next 12 payments to be $0? If anything, I would want to continue my car payments so the car is paid off a year early. So if you were going to do this, I would see if I could pay the principal down to $2.8K, not prepay the car note. By prepaying, you’re paying interest unnecessarily. 

I had a car loan with Kia and if you made an extra payment they applied extra to principal and extended the time to next payment.

With this scenario, it would lower his interest over the next 12 months to approx $160  compared to $212 with $200 payments.

A savings of $52. Not worth the lower AoYA, AAoA, transferring funds, new card, etc.

Interest paid to date is about $1,400 and with 5.64%, 5000 and 200/mo only $331 interest left on loan.

On the downhill side, just keep going.

 

@CreditInspired is correct you will still be paying interest for the next year on your balance on the car loan.

With your numbers $2,825 @ 5.64 = 13.27/mo for  12 months = $160 interest

Doing nothing your interest for next 12 is only $212

 

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Message 7 of 12
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Re: Use balance transfer credit card to prepay car loan?


@Kforce wrote:

@CreditInspired wrote:

 

Why would you want your next 12 payments to be $0? If anything, I would want to continue my car payments so the car is paid off a year early. So if you were going to do this, I would see if I could pay the principal down to $2.8K, not prepay the car note. By prepaying, you’re paying interest unnecessarily. 

I had a car loan with Kia and if you made an extra payment they applied extra to principal and extended the time to next payment.

With this scenario, it would lower his interest over the next 12 months to approx $160  compared to $212 with $200 payments.

A savings of $52. Not worth the lower AoYA, AAoA, transferring funds, new card, etc.

Interest paid to date is about $1,400 and with 5.64%, 5000 and 200/mo only $331 interest left on loan.

On the downhill side, just keep going.

 

@CreditInspired is correct you will still be paying interest for the next year on your balance on the car loan.

With your numbers $2,825 @ 5.64 = 13.27/mo for  12 months = $160 interest

Doing nothing your interest for next 12 is only $212

 


As I mentioned before I  decided not to go through with it, however I do believe it would have been worthwhile to do at the beginning of the car loan. While AoYA, AAoA are important, saving interest is my greater priority. Also who said you could only do this once? You could continously apply for another balance transfer card towards to end of of the previous one's 0 percent interest expiration. As long as credit card companies approve you of coarse.

 

Could this be done with a mortage?

 

 

Message 8 of 12
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Valued Contributor

Re: Use balance transfer credit card to prepay car loan?


@CueAyZee wrote:
Could this be done with a mortage?

Maybe some lenders have mortgages that work like you want. !

All of the mortgages that I have have had, did NOT work like this.

An extra payment or extra money just paid down principal and next months payment was still due in full.

That said just adding 10% extra to each payment would save more than your plan of BT each year.

If my payment was 1000, just pay 1100 every month and save your Fico , and hunting for new cards every year.

I don't think the plan would work for more than a few years before you ran out of cards allowing transfer to checking, and a large enough starting CL to make it worthwhile. Only true zero-fee / 0% BT's would save money with current mortgage rates.

 

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Message 9 of 12
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Re: Use balance transfer credit card to prepay car loan?


@Kforce wrote:

@CueAyZee wrote:
Could this be done with a mortage?

Maybe some lenders have mortgages that work like you want. !

All of the mortgages that I have have had, did NOT work like this.

An extra payment or extra money just paid down principal and next months payment was still due in full.

That said just adding 10% extra to each payment would save more than your plan of BT each year.

If my payment was 1000, just pay 1100 every month and save your Fico , and hunting for new cards every year.

I don't think the plan would work for more than a few years before you ran out of cards allowing transfer to checking, and a large enough starting CL to make it worthwhile. Only true zero-fee / 0% BT's would save money with current mortgage rates.

 


The presumption is that you could cancel the cards after you are done with them and reapply later. One theoretical application, though, is rent. Assuming a 12 month lease, pay your landlord 11 months rent upfront, and the landlord gives you the 12 month free. But I don't have the cahonies to try that.

Message 10 of 12
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