Credit Cards to Purchase Car?

ips_saint

Hi,

First time poster, long time reader!

I've been considering purchasing a new (second-hand) car for some time. My current situation is that in April my current car is due for its MOT. It is coming up to its last legs and I would like to get a new car anyway now I have graduate and have a nice job.

At the moment, I have circa £200 per month 'disposable' money to spend on myself after all current commitments (I don't have any debts). In April there is a good chance that I will move into a cheaper place and rent could decrease by £75 as well, giving me £275, of which I think I would spend £75 a month on myself.

I would require 6k capital to get the sort of car that I want and will last me for a long time.

A twist is that I am on the graduate scheme at a large IT company and expect a good hike in wage in 18 months when I come off the scheme and into the company as a fully fledged employee.

I have previously been put off from getting a car from the fact I do not have a great deal of money now, but would in a few years.

I had only previously looked at getting car loan from the likes of the AA, of which the loan repayments are spread evenly across the duration of the loan - thus meaning with the point made above makes it unfeasible to get a new car.

However, from reading these boards and speaking to friends, they have suggested using a credit card with 0% interest would be better as:
a) It is 0% interest
b) I can transfer the balance each time the 0% interest runs out
c) I can have low repayments now to suit my fiscal situation, and increase them at will in 18 months.

They think that the average minimum monthly payment on £2000 is £30, so £90 for £6000 sounds fair (can anyone confirm that these rough figures are correct'ish?)

This makes sense to me, and allows me to stagger my repayments. Are there any disadvantages to this at all? What if the 0% interest free offers end in 1 year? Am I missing something? Does anyone have any experience of doing this and transferring balances across credit cards?

All replies gratefully received.

Thanks.

rchddap1

One comment or question...are you guaranteed a job after the scheme is finished? Some graduate schemes do not and if there is not a suitable position available you could find yourself in a bit of trouble.

ips_saint

No guarantees, but it is highly likely - the company is recruiting double the graduates next year and has a reputation in the industry for not releasing employees (even during the dot com crash a few years ago).

Reaper

The only problem will be if you fail to get another 0% credit card to carry over the debt, either because something ends up in your credit history that the lenders don't like or the whole 0% credit card thing comes to an end (unlikely but possible).

Give some thought as to how you would cover it if you had to.

I have to say though that considering a 6k car when you have £200 disposable income sounds on the high side. Maybe as a first-jobber you should look at something more sensible. A high milage ex-fleet car will cost you half that but they tend to be well looked after and most of the mileage is only motorway driving.

johannamse

Most payments on cards are 2%, so on £6000, you would pay £120 a month. Although there are exceptions, Capital One are 3% so £180, but mbna are £5.

nh

I'd agree with Reaper that you should probably just get a cheaper car, just think what you could do with the extra money! But if you do want to go with £6k, your plan seems pretty OK to me, as long as you never miss a payment which would then affect your ability to get 0% cards.

What you could do is put the £200 a month away in a savings account for a few months, to see how you 'miss' it from month to month. If you feel really skint, then it is obviously too much of a commitment.

If you don't miss the £200, then that is obviously an amount you are comfortable with paying.

I have fallen into the trap loads of times of thinking I have £x a month disposable income, and then when it came to the crunch, I didn't leave myself enough spare.

Is your budget comprehensive ie. have you factored in car insurance, MOT, servicing, Christmas and birthdays? All those things that come up yearly or just every now and then can really put a strain on your budget.

Sorry to lecture you!

zcaprd7

I'd wait until the job was in the bag?

Just from experience is all...up to you.

moggins

Personally I'd get a banger to tied me over 18 months and then get a decent car but that's just my opinion. Nothing is ever a surety in life and if you can get away with as little debt as possible until you have the job, then I'd go in that direction.

Reaper

As nh says don't forget you will have extra costs when you have the car. My car costs are:

Insurance £243 (as a new driver expect to pay much more)
Tax £165
Annual Service £100
MOT £40.75

That works out at £46pm before I even put any petrol in the car! What's more I haven't made any provision for repairs.

So your £200pm will take a big dent.

I don't mean to put you off, I just want to make sure you've considered everything.

Pricy147

I have funded by car through credit cards for over 4 years, and have paid next to no interest in this time. One thing I would suggest if you are to do this however is this: DO NOT FUND THE CAR THROUGH CREDIT CARDS.

If you fund the car through credit cards, and as people here have said - you cant renew the deals - you end up paying 16/17% interest.

What you need to di is firstly apply for a loan. But not a normal loan....an offset loan. Inteligent Finance are the company I use - however there are other about such as First Direct, etc. Get the 6k loan you need which will be around the 8.9% mark probably.

now you have set monthly payments, and you know the interest rate wont go up - and you are guaranteed that money until you repay it.

Now go for the credit cards. Get 6k worth of credit cards at 0% and transfer into your offset current account. this will mean you wont get payed interest on the funds - but wont pay any interest on you car loan. If you exceed you 6k - you will receive interest on the supless in your current account (this is stoozing).

By doing this - if ou cant get the 6k you need - you arent running the risk of having to sell the car to repay the cards. You will simply revert to paying the 8.9% you originally borrowed.

I have done this on a 15k loan for over 4 years - and probably payed about £200 interest in that time - the interest should be over £100 per month!

Hoep this helps....

prenticesa

I'd echo what a few others have said - definately sort out a 'back up plan' in case you can't keep rolling the 0% deals on and on.

If you borrow 6k on a CC now, think about what you would do in nine months time when the deal comes to an end. If you can't get another 0% deal (and you should assume at this stage that you can't) can you repay the outstanding debt? If it gets to that stage you could be paying 20% interest. Selling the car wouldn't help too much at this stage, as it will be worth less than you owe!

I'd recommend sorting out a flexible (or offset) loan at the start. Cahoot are offering one with a typical APR of 6.9%. All the time you can get 0% CC deals, you won't be using it (and therefore won't pay any interest), but the facility is there 'just in case' - and at a very good long-term rate.

If you do decide to go for it, and get a 0% CC deal, make sure you set up a direct debit for the minimum payments.