Using 0% Credit Card To Clear A Loan?

landghove

I have 2 loans with one company

1 = 8.5% APR

2 = 13.3% APR

I have an offer on my credit card of 0% but with a 5% fee over 15 months.

Would I be saving money if I used this to clear my loans?

CliveOfIndia

If you mean you've got a Balance Transfer offer, you won't be able to use that to pay off the loan.  BT's are only for transferring a balance from another credit card.

If it's a purchase offer, you also can't use that.  The loan company probably wouldn't accept payment by credit card, even if they did then your card would treat it as a cash advance - meaning you'd get charged a fee, and you wouldn't benefit from the 0% offer.

If you're talking about a Money Transfer card then this is probably a good idea.  The sums are easy enough to do, but it's highly likely that you'll save more in interest than what you pay in fees.

However, you MUST make sure you'll be able to clear the card in full when the 15 month promotional period expires.  Otherwise you'll start paying interest at the card's standard APR, which will likely dwarf what you were paying on the loans.  And there's no guarantee you'd be able to transfer any remaining balance to another card.

landghove

"If you're talking about a Money Transfer card then this is probably a good idea.  The sums are easy enough to do, but it's highly likely that you'll save more in interest than what you pay in fees."

Yes its this one...so the loan that is at 13.3% I have £4,500 to pay and has 2 years to run.....I'm not good at maths....so would have to pay the CC company 5%.....any idea what interest I would pay otherwise?

CliveOfIndia

There are any number of loan calculators available that can help if maths isn't your strong point - there's one on this site : https://www.moneysavingexpert.com/loans/personal-loan-calculator/

But for £4500 at 13.5% over 2 years you'll pay £659 in interest.  5% fee on a Money Transfer card will cost you £225, so you'll save yourself £434 overall.

Do remember that you'll need to make the minimum payment to the card every month.  And, as I mentioned previously, you really do need to have a plan in place to repay the card in full when the promotional rate expires.

surreysaver

A 5% fee over 15 months is equivalent to 4% over 12 months (5÷15)x12, if you want to compare it by annual rates 

PRAISETHESUN

I echo the points above, especially with respect to having a plan to pay off the balance by the end of the 0% period.  Otherwise the 0% rate will revert to the standard CC rate (usually 20-40%), which is substantially higher than the 8-13% rates on your loans currently.

inthezeroroom

Whilst I agree that the maths makes sense, as others have said, please just make sure you have a plan to actually pay it off. Debt is not a maths problem; it's a behaviour problem. The danger in transfering your debts to a 0% card, while making sense mathematically, is that you think you've sorted your debt problem, when all you've done is move it sideways. I spent the best part of 30 years doing this, moving and consolidating debts, using 0% deals and making minimum payments and all the time not understanding that it was me that needed to change rather than the lender. Eventually, I realised that the only way to get rid of debt was to actually pay it off, and, I'm sorry, I know that may sound terribly glib. 

So in this situation, you have two loans, with monthly payments. Get some overtime, work a second job, sell stuff and overpay on these loans until they are gone. Trust me, it works and you'll feel better. The few hundred quid it will have 'cost' you not to transfer to a 0% card will be money well spent.

CliveOfIndia

inthezeroroom said:

please just make sure you have a plan to actually pay it off.

You make some very good points.  Yes, by moving debt to a 0% vehicle you'll save some interest, which obviously helps.  But by paying only the minimum you're making very little inroads into actually clearing the debt.

But by far the biggest danger is in assuming that you'll be able to do another balance transfer when your 0% promotional rate expires.  It's a fairly regular topic on these boards: "Help, my 0% has expired, can't shift the debt, now I'm lumbered with paying 35%".

For sure, all other things being equal there's probably a reasonable chance you will be able to do another BT (albeit for a fee).  But look what happened during Covid - lenders really started to tighten their belts and credit became increasingly difficult to come by.  Prior to that, every man and his dog was being offered credit left, right and centre.

Who knows what next Covid-like event is round the corner?  Who knows what other factors will hit the financial landscape next?  Even, who knows what will happen to your own financial situation in the next 18 - 24 months?

retiredbanker1

OP unless you are 100% certain that you repay the whole amount within the interest free period - don't do it.
What I would do is overpay the existing loans - thus minimising the interest you will pay on the loans i.e. you will pay it off sooner than arranged.