Car Loan option

[ktmarvels]

Today in the mail I got a letter from our bank stating that they increased our credit limit to $16,500 and have balance transfers at 3.90% for as long as we have the debt. Now, we have a car loan that is currently just under $9,000 with a 5.99% interest rate. Would it be a good idea to transfer our car loan to our credit card???

First a little about the car loan we got the car in August with a 13K loan for 5 years. We have already paid off about $4000 on it, and shaved off about a year on the payments. We are planning on continuing to make extra payments to get it paid off as soon as possible. We are not having any problems with our car loans and it is really only the 2% savings in interest that is even having me considering this. I am asking for advice from you to either tell me I'm crazy or let me know of other potential pit falls.

The caveats to transferring the balance I see are:
1. The payments go toward the lower interest charges first. Therefore anything we charged would be collecting interest at a higher rate (12.15%) while we were paying off the car. Since we normally put everything on our cards (and then pay it off each month), we would obviously need to work around this and I think I would do so by opening another card.

2. Our credit utilization would go down as we would be using about half of our balance for the car.

The plus side is that we would be dramatically lowering our interest rate, but about 2%. We would continue to pay off the same amount each month, so the car would be paid off a little bit earlier, although according to my calculations it may only be paid off a month or two earlier.

Thanks for your help, I look forward to hearing what you have to say!

[disneysteve]

Regarding your #2, do you mean your utilization would go UP, not down?

It really doesn't matter how much sooner you'd pay off the car. What matters is how much less it would cost you in dollars and cents. So run the numbers both ways and see how much you would save.

Is there a balance transfer fee? There usually is a certain percentage up to a certain limit, like 3% up to a max of $75, or something like that. Don't forget to count that in.

And you are correct that once you transfer the balance to that card, you shouldn't use the card for anything else, so you need to get yourself another card. I'd suggest doing that first, so the balance on the existing card isn't 9K when you apply.

[project15]

I didn't even think that you could do this for car loans (not sure why I thought that). But it does seem like a good idea. Even if they do charge you $75, I would think that would be significantly less than the interest you'll be paying on the rest of the loan.

[jodi]

I looked into doing this at one point with my student loans, but decided the risk wasn't worth the gain. For the card we were looking at, we had to make two purchases each month - this doesn't sound like the case for you though.
How much do you plan to pay per month? In a year's time, 2% would save you $180. Minus the $75 transfer fee, that's a savings of $105. If you pay it off in a year, that's all you would save. If it's going to take you several years (which it sounds like it will), obviously you would save more, although the amount you save will decrease as the balance decreases. Just make sure that you continue to make monthly payments at least equal to your payments now so you don't lose the advantage by taking longer to pay the loan off. It's easier to let the payments slide a little when it's a cc compared to a fixed payment.

[Ima saver]

Is it reallly worth the hassel for such a small savings? $180?? (for the first year)

[ktmarvels]

After reading your posts and thinking about it more it does seem like it might be more of a hassle than its worth. So we'll just keep up with the current plan of putting extra money toward the car and save money on interest that way. Thank you all for your advice.

[poundwise]

I think that its too little to gain and unnecessary.

Besides the credit score concerns, I would also point out that even a guaranteed rate on a credit card is out-the-window should you do anything to trigger the default rate. Though that, in itself, wouldn't necessarily be prohibitive, in this case, I just don't see enough advantage to mess with it.

Keep paying on the car as you are and you'll have it knocked out before you know it. That's the most straightforward and sure approach.

[zetta]

My first thought was, "Watch out for universal default!" If you've got 4 years left on the loan, that's a lot of time in which you could accidentally pay your other credit card bill a few days late and trigger a clause that increases your rate.

[pennrj430]

I would not do it. When it comes to Credit Scores, having a Revolving line such as a credit card, is weighted much heavier then having an Installment loan like your car loan. If you close down your car loan, which you have been very good at paying on time, and open up another credit line, you will do more damage to your credit. For saving a few hundred $ over the course of over a year, I wouldn't do it. Just my opinion.