0% interest credit cards for high value purchases (eg new car)

KoobsA20

First-time poster, please excuse the ignorance.

Am wondering if it's possible/wise to buy a brand new/ 2nd hand car on a 0% interest credit card? I am fortunate and can get very healthy credit limits (~15k or so through automatic online vetting). I haven't checked if they will lend me more but if they can then great. I have the money to make an outright purchase but would prefer to pay it off through regular instalments interest-free, and divert my cash reserves into investments/ savings. Some online car retailers (Cinch, Cazoo) do seem to accept credit cards for purchase, and also seem to allow you to spread over multiple cards. 

I would be able to pay the credit card off in the period pre-specified (eg 18-24 months), but gameplan would most likely be to jump over on to another 0% interest card as that date draws near. This way I'd try to pay off at a comfortable rate (eg £500/month, over 36-48 months or so) and therefore continue being able to save/invest alongside this. If I was struggling to jump on to another 0% credit card, I would always be able to dip into my cash reserves to clear the debt. Equally, I may even end up selling the vehicle 3 years later and should be left with a sizeable sum to clear any outstanding credit card debt.

Seems a very cheap way to borrow when compared with HP or PCP deals, and owning the car seems more cost-effective than leasing, when you tot up all the sums, hence have been looking at how to best get there. Thoughts/suggestions welcome.

Some concerns:

- Are there any red-flags to your own personal credit rating, if maxing out your credit limit on said 0% cards? Should I take out two cards instead to avoid this?

- Are there risks to taking out multiple cards - online each card provider asks about outstanding debt but if taking out multiple cards at time zero, the answer is still zero debt?

Full disclosure:

- Already have a mortgage, comfortably being paid each month

- Dual income household, wife is a similar 'high' income individual, so can help with repayments if required

[Deleted User]

Lenders will be looking at your total debt, rather than by card and debt at a promo rate will be viewed differs toy to interest bearing debt.

The biggest issue is that if you find someone who will accept a card as full payment, then  you'll be paying over the odds for the vehicle. But if you can keep your savings working harder than what it's cost you, you may still come out ahead.

KoobsA20

I think the price difference between retailers offering credit card purchasing vs conventional car dealerships (who tend not to), is then massively outweighed by the cost of a PCP deal/ HP deal over the full term of the agreement.

Whilst I didn't specify, this is for purchasing a fairly expensive vehicle (£30-40k) and making such a cash payment upfront when instead I could part with just £10k and the rest could be comfortably paid off in monthly instalments at 0% interest seemed more favourable (even if the buying price of the vehicle is slightly greater than if buying from a normal car dealership).

Ebe_Scrooge

As above, really.  You do seem to have thought through one of the key sticking points (well done!) - don't assume you'll be able to shift the debt to another card at the end of the promo period.  If you can then great (though there'll usually be a transfer fee to factor in), but if not you'll need to use your savings to pay it off.

The utilisation percentage is not an issue (despite what the CRAs would like you to believe).

The main point is the merchant fee that the dealer will have to pay if you use a credit card.  Most dealers will refuse to accept a credit card for anything other than a small deposit, because they'll have to pay a fairly hefty fee to accept the card (in the olden days they'd pass the fee on to you, but they're not allowed to do this these days).  If Cazoo or whoever is happy to accept full payment by card, you have to ask how they're paying for their fees - are they adding several hundred to the price of the car?

martinbainbridge1975

As well as the merchant fee pointed out by Ebe-scrooge the dealers may also refuse a credit card purchase linked to your rights under Section 75 if there is an issue with quality of the car.

You may also find that the maximum deposit on a credit card to be in the region of £500.

I managed to find a good rate PCP but went via a finance broker not a car dealer

eskbanker

martinbainbridge1975 said:

As well as the merchant fee pointed out by Ebe-scrooge the dealers may also refuse a credit card purchase linked to your rights under Section 75 if there is an issue with quality of the car.

Why would a merchant be concerned about s75 rights, as these have the effect of offloading liability to another party?

Having said that, if OP is buying above £30K, then s75 wouldn't apply anyway....

KoobsA20

Yeah, that's a fair point, I didn't appreciate that there was also a balance transfer fee to pay, which does bear considering if planning to hop on to another 0% interest card at the end of the initial term.

You've said I shouldn't assume I can get myself another card at the end of the promo period - is that because I'm less likely to be successful in my application for credit as I would already have outstanding debt at the time of applying?

Just scanning the deals available on Cinch and Cazoo, I think even with the inflated prices, this method of payment is still cheaper than a PCP or HP deal, but appreciate it's the more conventional route and probably less 'risky.'

MrFrugalFever

Not sure if you have a curve card but that’s a debit card fronting a credit card and thus would allow the full spend as technically it’s a commercial debit card at POS. Haven’t used a curve card since closure in mid-2020 so not sure if their business model has changed now? I was a Curve Metal member and I think I paid £15pm for the account.

Ebe_Scrooge

KoobsA20 said:

You've said I shouldn't assume I can get myself another card at the end of the promo period - is that because I'm less likely to be successful in my application for credit as I would already have outstanding debt at the time of applying?

It's partly because you'll have existing debt when you come to apply (though this is less of an issue for a BT than for taking out additional borrowing), but more just a case that lending criteria change and evolve all the time, and lenders' appetite for risk changes.  Soon after Covid first hit, this board with awash with tales of people unable to get credit - people who had previously had offers coming out of their ears.  With all the economic uncertainty, lenders tightened up their lending criteria massively.  Hopefully the worst of Covid is behind us now ... but who can predict what other major financial crisis may occur in the next 12 or 24 months?

I'm not saying you wouldn't get another offer, just that you mustn't bank on it.  We hear countless tales of woe on here ... "My interest-free period is ending, I can't get another card and can't afford to repay the card, what do I do?".  Anytime someone asks about balance-transferring a debt, I always end my reply with "Make sure you have plans in place to repay the remaining balance when the promotional rate expires".  Like I say, if you can BT any remaining balance, and the fee makes it worthwhile to do so, then great ... but just don't bank on being able to do so.

Grumpy_chap

If I have understood this scenario correctly, the OP is looking to buy a car in the £30k - £40k range.
The OP *could* buy the car using cash reserves.
The OP is incentivised to use 0% credit card to avoid PCP / HP interest rates.

This rationale makes good sense, though it is probably not worth incurring extra cost to buy the car to be able to pay on credit card and benefit from the 0% interest as the savings on deposit are likely not making sufficient interest to cover that extra £££ in purchase price.

Another factor that is probably key to whether the idea is a good one is the OP's decision as to whether to buy a brand new or second hand car, which does not seem fixed at this stage.
IF the OP goes for a brand new car, then a PCP deal with an incentive (deposit contribution / service plan) might make sense, then pay off early from the savings so avoiding interest.  The loss of income on savings is likely less than the value of the incentive gained.

I hope I understood correctly that he OP *could* pay using savings.  That was my take from:

KoobsA20 said:

I would always be able to dip into my cash reserves to clear the debt. 

That is less likely to be as attractive IF the OP choses a used car as the PCP incentives are generally less good on used cars.

KoobsA20

Thanks, I didn't realise you could pay off PCPs/HPs in full prior to interest rates being applied, also wasn't aware that the dealers would throw in special discounts for those going for PCP deals.

I think I am still overall, less keen on brand new vehicles (depreciation etc) but will see what deals are on offer.

I think my general discomfort with sinking a lot of my own capital (40k), upfront into an asset that isn't generating money when there is the offer of cheap finance on the table, that can be paid back steadily with Income.

And rather than comparing the interest on 40k held in a savings account (which isn't great), against the incentives gained by purchasing upfront, after paying 10k upfront for the car and taking out 30k on 0% CCs, for example, I would probably put 10k into an ISA wrappered Index Fund (~10% growth), whilst keeping 20k behind to help clear the credit card debt if I ran into trouble (having paid 10k of the debt off, over the initial 24 months 0% interest-free period), and then repeat (further 10k into ISA, whilst steadily paying off the remainder if I've managed to successfully transfer the remaining 20k debt onto a further interest-free CC), if that makes sense...

Can see why most don't opt for this - hassle, need for good credit rating, some inherent risks of overleveraging involved, but seems overall more cost-effective.