I just got my MBNA Platinum card with a 4.9% APR. The 4.9% APR will last till October of 98. I'm planning to take cash advancement to buy me a used car. I know a few friends that had/have credit card debts, but this seem to be cheaper than getting a loan from a bank or equivalent where the APR is higher than 4.9%. I got backup where I can pay the full debt if needed (the money is in my stocks) It seem to me to be a better choice if I keep my current money where it is and get extra from my credit card to buy the car then pay it off before the 4.9% APR expires.Anyone have a better idea or how to get a lower APR loan? Please don't tell me not to get a car. My current car is fallin' apart by the days.
<<I just got my MBNA Platinum card with a 4.9% APR. The 4.9% APR will last till October of 98. I'm planning to take cash advancement to buy me a used car.>>Zuffy,Slow down there, pal. : )Before you go off picking up some fuzzy dice to hang on the rearview mirror, I suggest you make some serious calls to MBNA and tell them your plan.If I'm not mistaken, the 4.9% does not apply to cash advances, and there's almost always an added fee on cash advances. They don't hand out money like that in low interest loans.Speak to the people there, get names and document everything before you take any cash. You may find out that things are not what they seem.But there are some excellent deals around at dealerships now, many offering 1.9% financing. So, you may even be better off not using a credit card afterall.Good luck, and let us know what you find out.Tony...but I still am...Off2Aruba
<< If I'm not mistaken, the 4.9% does not apply to cash advances, and there's almost always an added fee on cash advances. They don't hand out money like that in low interest loans. >>Well, I'm gonna call and verify that. The CS presentative I spoke to on Friday say it was 4.9% for balance transfer and I sweared she say 4.9% on Cash Advancement too. << But there are some excellent deals around at dealerships now, many offering 1.9% financing. So, you may even be better off not using a credit card afterall. >>I'm not looking for a new car, but a used one so that 1.9% financing definitely will not be offered. I don't remember where I read it from, but there are some criterial to be met before they offer the 1.9%Thanks for the reply and I will keep the board updated on my status.
Zuffy,I am a little concerned about your plan to use your stocks as a backup to pay the full debt. Even though the economy is humming along and jobs are plentiful, you have to consider a layoff or drop in the stock market. A drop in the stock market like October 1987 could mess up your plans. Nothing is guaranteed.
<< But there are some excellent deals around at dealerships now, many offering 1.9% financing. So, you may even be better off not using a credit card afterall. >>It is extremely unusual to get such a low rate without paying more for the car, either directly or by losing out on a rebate (e.g. you can get 1.9% financing or $500 cash back, not both). If you have a chance at a lower rate elsewhere, it is generally better to use that and take the cash rebate or lower price.
You have a rather creative way on buying a car. In this case a Used car. I would think very hard about buying a car with a credit card regardless of the rate. I tend to agree 4.9 for a used card is a good deal if that is infact that case as Tony suggests talk to MBNA and findout for sure the rate for cash advances. A few other things you mentioned concern me too.1. I would much prefer a regular loan to a credit card anyday. In 6 months that rate will jump, you didnt specify what APR that wil be then but It should be about 12 and less than 18 I would suspect. Then you be stuck with that balance at the higher rate. As opposed to a higer Rate loan with a fixed term to it. There is a trade off there and you might come out ahead paying the higher rate now versus the credit card rate for 2-3 years.2. Using Stocks as a back up is just as risky. That money is/should be for Long term growth like retirement, education for kids - in general if you plan on using that money in the next 3 years (I think that is the rule-of-thumb) you prolly whould not have that money in the market. Rather it should be in a Money Market or maybe CDs. 3. You may really end up cutting your retirement money (Stocks) by a 4-5K to avoid finance charges. That is money that you really need to start building up to get the real advantage of Compound Intrest. It puts you that much further back.Good Luck. I think I would look at what kind of Financing I could get with a normal Used Auto loan first. Also try not only the dealership (if its reputable) or a bank/credit union perhaps.Please let us know the outcome. Like I said your solution is creative if not risky... RobBottles
<<It is extremely unusual to get such a low rate without paying more for the car, either directly or by losing out on a rebate (e.g.you can get 1.9% financing or $500 cash back, not both). If you have a chance at a lower rate elsewhere, it is generally better to use that and take the cash rebate or lower price.>>Hi,KoshN!You're right.And while this isn't the "Buying a Car" board (which, incidently can be found at http://boards.fool.com/Messages.asp?id=1040002000000000), it's always very important to remember that you should NEVER disclose how you intend to pay for your car until after you've gotten your best price (the same goes for telling them you have a trade-in). This way, you can use the financing rates that are advertised after making the deal.Tony...but I still am...Off2Aruba
Tony wrote:"Zuffy,But there are some excellent deals around at dealerships now, many offering 1.9% financing. So, you may even be better off not using a credit card afterall.Good luck, and let us know what you find out.Tony...but I still am..."Zuffy,You want some "creative financing" ideas? Let me help you. First skip MBNA. They are the ones that bury that october 98 expiration date on the back of their offer in teenie tiny print.Three options. This is the conservative, safe approach.First, your cash in the broker's account (sweep account) should be earning interest. Mine earns about 5% in a sweep fund.Convert the stock you had planned to use to cover the cost of the car to cash in the amount of the vehicle.Place that amount in an interest-free sweep account. (Municipal bond mutual fund- most brokers offer one). That pays about 4%. Then take the 1.9% financing, putting only the minimum down on the car. Over time, you will find it is a much better deal to take the financing at 1.9% than the $1000-$1500 rebate the dealer offers. You will earn 2% in excess of the amount you pay to finance the car. Each month, use the checkwriting feature on the brokerage account to make the car payments. You can actually make money using the company's discount financing.Second, very risky approach. This is the one I used to buy our van for the kids.Again, take advantage of the dealer's 1.9% financing and put only the minimum down for the car.Using the equity in your stocks, set up a margin account. The rate of interest on most margin accounts is 8.25%. Sell monthly covered calls on tech stocks, earning the amount needed from the premium paid for the car payment each month plus extra for taxes. That money goes into the sweep account and earns interest until you need to write a check on it. On months when you can't make the payment on calls, you go into margin, and pay at most 8.25% interest for that month on the car payment for the month. If you can sell calls and earn the car payment each month, you will pay for the car without even having to sell the stocks unless you are called out, in which case you can buy back in and do it again.A third approach is to cash in the stock, and open a CD at a bank. They will give you about 6% depending on how long you leave it in. Then take out a passbook loan for the amount in the CD. The bank gives this usually at 5%, so with the interest you get from the CD during the loan, you actually are only paying about 1% for the loan. Then use the proceeds to buy the car. In effect, you just made yourself a very cheap loan.Just some ideas! :)Foolish Venturistand Equity Financing, Private Placement Fool too!
>> Over time, you will find it is a much better deal to take the financing at 1.9% than the $1000-$1500 rebate the dealer offers. <<I have to disagree with you and side with TMF2Aruba on this one. It just ain't so.You need to compute the APR the same way you would when comparing mortage rates (when loan origination fees are figured in).To fairly compare interest rates, you MUST figure in the $1500 extra you'll pay for your car if you take the 1.9% financing. Treat it as interest over the life of the loan. Your 1.9% financing suddenly becomes an astronomical APR (sometimes as high as 15%)!!I don't have time now, but later I'll run some numbers for you as an example.Regards,Mike
<<To fairly compare interest rates, you MUST figure in the $1500 extra you'll pay for your car if you take the 1.9% financing. Treat it as interest over the life of the loan. Your 1.9% financing suddenly becomes an astronomical APR (sometimes as high as 15%)!!>>I don't agree with this. The $1500 is above and beyond your best negotiated deal. This is money coming from the auto manufacturer, not the dealer, so the dealer gets their money either way.Let's look at an example:We (collectively at The Motley Fool) are buying the "average" car with a sticker price of $18,000. We follow the foolish advice on buying a car and negotiate a price of $16,500. Let's also assume we are putting a $1500 down payment, so the amount financed would be $15,000. The last assumption is that the loan will be for 4 years, either way.If we take the $1500 from the dealer, we cannot get the promotional financing rate, so we will get the "average" rate of 8.9%. We will end up financing $13,500. This equates to a monthly payment of $335.31 and a grand total of $16,094.76.If we take the 1.9% financing we will end up financing all $15,000. The monthly payment is $324.77 and a grand total of $15,589.09.By taking the promotional financing and "buying" $1500 more car, you pay $505.67 less over 4 years. In my opinion, it is always better to go with the promotional financing than the cash back. Besides that, most auto manufacturers are only offering $700 or $1000 cash back, not the $1500 in our example, so this just makes the dirrerence that much greater. And if you get a "regular" finance rate higher than the 8.9% used in the example, again you end up paying more.Just my $0.02 worth (very Foolishly invested, of course ;)David (But I'm not) Boring
"I have to disagree with you and side with TMF2Aruba on this one. It just ain't so.You need to compute the APR the same way you would when comparing mortage rates (when loan origination fees are figured in)."I'd like to see your figures, because when I calculated it myself, it was much better to take the financing then to take the $1000 rebate Ford was offering.Plus, for purposes of your argument you are assuming that the consumer HAS the entire price of the car to set down on the table. Remember, you don't get ANY rebate unless you pay CASH for the car. They give you either or, but not both.Moreover, you are not taking into consideration the amount one can earn if you invest the money in the stock market during good times, or simply earn 5% on a broker's sweep account if the money is in cash.As I recall, the use of their money for financing a $26,000 van at 4.8% SIMPLE financing (the car dealers give you simple interest financing) amounted to $2104.31 in interest over 48 months. The payments were$573 per month. So it costs me $2104 to use their $26,000 for 4 years. Meanwhile, to date, by investing the money, I have made about a 20% return, not to mention that I have used the very risky and tricky method of selling calls to make the payments, thereby retaining the $26,000 principal. I could have saved $1000 on the price of the vehicle, true, but then I would lose the use of the $26,000 forever. No investments, no 20% return. I based my decision not just on the relative costs of the vehicle adding in the lost $1000 rebate, but the value of the money if wisely and skillfully invested, and determined, in my case, I was better off with the 4.8% financing.This does not mean it is the right way to go for everyone. I think that consensus does indicate that the majority of the people here think that using the MBNA card is not a preferable option.I think the safest option is to make oneself the passbook loan on the money, and pay it back at 1% interest. Were it not for the fact that I thought I could do better in the stock market given the history of the past year, it is the option I would have chosen myself.Foolish Venturist
<< I think the safest option is to make oneself the passbook loan on the money, and pay it back at 1% interest. Were it not for the fact that I thought I could do better in the stock market given the history of the past year, it is the option I would have chosen myself. >>Thanks for all the replies. I think the passbook loan is the best option for me, but what is a "passbook loan"? I'll probably be better off just gettin the loan and keep my stock money where it belongs, the stock market.P.S. Just a reminder, I'm only 23, single, and make an OK salary so I am willing to risk a little more than said someone who may be married or something.
Some of the messages on this topic seem to have overlooked the fact that the original question was about using a cash advance to buy a used car.For a used car, neither a manufacturer's rebate nor promotional financing comes into the picture. Furthermore, conventional financing will probably be at a higher rate than for a new car. Any comparison ought to take that into account.And, as has already been said, the introductory rate on the credit card probably doesn't apply to cash advances.So, if the introductory rate on the card is really attractive, it would be necessary to find a used-car dealership that takes credit cards. Or to get a cash advance on *another* card and transfer the balance, if the introductory rate applies to balance transfers.In any case, I couldn't see financing a car on a credit card unless I happened to be in a position to pay cash -- then I might consider financing it on a rebate card, and pay in full before the intro rate expires.
Long post.Oh boy! Where to begin? Let's get a few details out of the way. First, from FoolishVenturist:>> Plus, for purposes of your argument you are assuming that the consumer HAS the entire price of the car to set down on the table. Remember, you don't get ANY rebate unless you pay CASH for the car. <<This is almost never the case. You don't need cash to get the rebate, you just need to secure your own financing. I can get a 7.5% new vehicle loan from my bank and still get the rebate. Sure, dealer financing may be 1.9%. But, I have to "buy down" the rate for $1,500 (giving up the rebate).This is where we need to compare apples to apples. The Truth in Lending Act requires mortgage lenders to report mortgage rates in terms of APR. A mortgage may have a low interest rate but have loan origination fees and points. With the fees expressed as prepaid interest, you get a higher APR.What I intend to do is compute the APRs for various rebate programs and demonstrate how the APRs for dealer financing generally exceed the APR you can get if you secure your own financing.For starters, let me address what I consider to be a reasonable interest rate. DavidBoring used 8.9% but felt even that was too low. That may be true in some areas, but I'll use my personal bank as a point of reference. Today, I can get a 7.5% new vehicle loan in the Dallas area. Here's proof:http://www.dtcu.org/rateloan.html7.5% compounded daily is approximately 7.8% APR. So, 7.8% is the number to beat, right?>> Moreover, you are not taking into consideration the amount one can earn if you invest the money in the stock market during good times <<This is immaterial - but you probably stated this assuming we were buying the car outright. If we were, there's no APR because there's no loan. As it is, we're only taking enough money out of the market for the down payment. Essentially, we've got a 7.8% margin loan. Since the market historically has returned about 10.7%, we'll probably still make money as you pointed out.How much we can earn in the stock market isn't the issue, anyway. I'm trying to demonstrate how it's almost always beneficial to secure your own financing (as long as it's not on a CC) rather than take dealer financing. Apples to apples, right?Now, let's get down to business. First, let's compute some APRs using DavidBoring's assumptions. David has given us the option of "buying down" a $13,500 loan to 1.9% for 4 years for $1,500. Computing $1,500 as prepaid interest, that's an APR of 7.2%. Yes, that's still better than the 7.8% I can get at my own bank, but in a moment I'm going to dispute David's assumption.As an aside, what happens if we want to pay of the debt early? Maybe we sell the car after three years, pay off of the old loan, and then get a loan on another new car? The APR on the dealer financing soars to 9.0%! Whew! The DTCU loan, however, is still sitting at 7.8% APR. That's the curse of prepaid interest.Before I go any further, let me say that if David and I met face to face, I'm sure we would get along great and he would find me friendly and diplomatic. Unfortunately, in the written media, I often come across as fiercely argumentative. Perhaps I need to use for emoticons to show that I'm not scolding, flaming, or being condescending. :-> I'll try to choose my words carefully so I don't offend. At any rate, David, just grit your teeth and say "hey, Mike's really not such a bad guy!"Okay, the dealer financing terms you described might be available where you live, but in Dallas they're not nearly so generous. In Dallas, you'll never get 1.9% for 48 months - it's usually about 36 months. Also, I've seen customer rebates as high as $7,000 - far more than the $1,500 we originally discussed.I couldn't find a Web site for a Dallas dealer that gives financing terms, but I did find this one in Amarillo:http://www.autoplex-tx.com/specials.htmScroll down to the section for "Buick Specials". They offer a $1,000 rebate and a variety of loan terms. Assume, again a $13,500 loan, but now only $1,000 to "buy down' the rate.If you take their 2.9% for 36 months, the APR is 7.7% (slightly better than my 7.8%). But, the 4.9% for 48 months is 8.6% APR and 5.9% for 60 months is 8.9% APR. The worst deal is the "Lincoln Special" farther down the page: $5,000 cash back or 1.9% for 48 months - that's almost 20% APR!!!The morals here are:1) Unless you're lucky enough to find the dealer financing terms that David described, you're probably better off securing your own financing. We can always make examples with contrived numbers to make a rebate look better, but I don't think that happens in reality.2) If you _do_ get dealer financing and give up a cash rebate, don't pay off the loan early. The prepaid interest causes the APR to skyrocket. Paying off the DTCU loan early does _not_ affect the APR because there are no upfront fees.3) You can reduce the effect of upfront fees on your APR by maximizing the financed amount and only making the minimum payments.Andrew Tobias had an excellent discussion on APRs on the Ameritrade web site:http://www.ameritrade.com/cgi-bin/tobias_article.cgi/19980504.htmland a followup:http://www.ameritrade.com/cgi-bin/tobias_article.cgi/19980513.htmlIMHO, dealer financing/rebate programs should be bound by the Truth in Lending Act the same way as mortgage lenders.I support FoolishVenturist's assertion that it's often better to borrow to buy a car (at today's ultra-low 8% APRs) than take money out of the market. However, have you considered getting your car loan from your broker? You could borrow your $13,500 from a Datek margin account at 7%. What's better is that, unlike a traditional car loan, margin interest charged to a brokerage account is TAX DEDUCTIBLE (with conditions)! Cha-ching! In the 28% tax bracket, your car loan is now 5.2% APR. I challenge you to find a dealer who can beat _that_!--Mike
"Some of the messages on this topic seem to have overlooked the fact that the original question was about using a cash advance to buy a used car."I don't think I overlooked that in my posts. I acknowledged that was the idea, and dismissed it as a poor way of financin the purchase, providing some alternative, if not foolishly creative ways to accomplish the objective.There IS more than one way to skin a cat!:)Foolish Venturist"And not as rebuking as SOME"
<<Before I go any further, let me say that if David and I met face to face, I'm sure we would get along great and he would find me friendly and diplomatic.>>Likewise, I'm sure. :)I think the biggest difference in the comparisons is our starting assumptions. For example, with a car you negotiate your best price. Then you choose the financing or the rebate, which I interpret as "free money."With a house, you negotiate your best price, then you pay more money for better financing.I believe the difference is mostly semantics. But if you can't get the car dealer or the house seller to budge another inch on price, I see the car purchase a little differently because it is almost like someone walking in and giving the dealer a $1500 payment in your benefit. I wish someone would offer such a thing for a house. ;)In either case, both of us are right. It's kind of like asking what is on a quarter? Washington or an eagle? The answer is "It depends on which side you are looking at." But either answer is correct.Have a wonderful weekend!David (But I'm not) Boring
I got my MBNA Platinum Plus introductory brochure today. The 4.9% APR are for balance transfers and credit card cash advance checks, valid until 10/98.This is very tempting and I may go with it to get my used car. Remember, I'm not buying a new car or some used car like 25k. I'm planning to get a Honda Accord, either 1994 or 1995 in the range from 7k - 12k.
<<I got my MBNA Platinum Plus introductory brochure today. The 4.9% APR are for balance transfers and credit card cash advance checks, valid until 10/98>>Don't forget that cash advances come with a transaction fee of about 2%. That 2% upfront charge for the use of the money for four monthes translates into about an additional 6% "interest." The "loan" is now at 10.9%, couple of more points and you'll have the rate for people with BAD credit.~~paul
<<Don't forget that cash advances come with a transaction fee of about 2%. That 2% upfront charge for the use of the money for four monthes translates into about an additional 6% "interest." The "loan" is now at 10.9%, couple of more points and you'll have the rate for people with BAD credit>>Well, the cash advance checks that came in the envelope carry no transaction fees. The only thing I need to do is to verify it with a Customer Service Representative.
"This is very tempting and I may go with it to get my used car. Remember, I'm not buying a new car or some used car like 25k. I'm planning to get a Honda Accord, either 1994 or 1995 in the range from 7k - 12k."In that case, I suggest you consider the passbook loan idea I mentioned or simply buying the car by writing a check on margin. Consider the wise advice you have received on this TMF message board- particularly the fact that margin interest is tax deductible while interest on a credit card is not. The comparison is 8% margin interest which is deductible as opposed to 4.9% which is not only not deductible, but while blows up to double digit rates in a few short months. Plus, psychologically, if you do the margin, you will still retain the underlying securities should they appreciate in value.Foolish Venturist
>> I got my MBNA Platinum Plus introductory brochure today. The 4.9% APR are for balance transfers and credit card cash advance checks, valid until 10/98. <<Be very careful about how new purchases are handled.I once had a card with 19.8% interest - but I paid it off every month. Then, I took one of their balance transfer options at 5.9%. Well, every payment I made went toward the _low_ interest rate balance!!Suppose I charged $500 in a month. I'd send in $500 for new purchases plus, say, $200 to pay down the transferred balance. Well, those scammers applied the entire $700 to the 5.9% balance. Meanwhile, the $500 I meant to pay off kept racking up $19.8% interest until the other balance was paid off.--Mike
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