# 0% Question

Forumite Posts: 1 Newbie
I'm not really a newbie but have only ONE credit card with a balance of less than £1000 and no other debts (no overdraft, no store cards, no other credit cards). I'm buying a new second hand car tomorrow (£3500) and not sure whether it would be a good idea to pay by cc and then transfer the balance to a new 0% cc, OR to pay for it out of my own ISA savings. If I use my cc I'll earn airmiles though paying this way carries an extra 2%charge. Any thoughts?

• Forumite Posts: 7,320
Forumite
Assuming the dealer will accept a card ( many won't ), then it's just a case of working out how much the air miles are worth to you, against the charge that the dealer will almost certainly levy on you - you mentioned 2%, is that what he's going to charge you for using a card ?

Anyhow, it's a fairly simple calculation - will the air miles be worth more than £70 ( which is 2% of £3500 ) ? If yes, then go for it, if no then don't
• Forumite Posts: 624 Forumite
Hello

Yes, this is one of those ones which makes your head hurt a bit!

You need to consider:

1) Do the airmiles make it worth the extra 2% surcharge of £70?
2) Is there a % charge for transferring the 0% balance? Most credit cards have a balance transfer fee and depending on your card provider this could be up to 5% - this means that you could be paying a total of £3748.50 based on the 2% surcharge and an example 5% on the total transferred.
3) What is the interest rate like on your ISA? If your ISA is 3% for example you could get a return of £105 across the year on a £3500 balance.

So, based on those figures you would be better off paying from your savings as by doing it by credit card would cost you £248.50 and doing it via savings would "cost" you £105 in lost interest.

If you can find your ISA interest rate and your % balance transfer fee you will be able to get a better idea of which way to do it.
• Forumite Posts: 3,202
Forumite
How much interest do you pay (per month) on your credit card debt?
How much interest do you earn (per month) on your cash ISA?

Interest rates on ISAs are so poor at the moment that I would use the ISA to pay off the credit card and to buy the car.

With a £15000 per year ISA allowance you can easily replenish your ISA savings if/when the rates improve.

If you go through with your plan, you'll pay a 2% surcharge to the car dealer, and a balance transfer fee to your new CC.
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