needhelp1700

I've occasionally bought computer equipment with 6 month or 1 year free financing. Then taken the cash I would have paid for the product and put it in a high yield savings account. Then paid the bill just before it's due.

It works, but I'm not really sure the stress of remembering to jump through all the hoops is worth the trouble for an extra 1% on a few hundred or thousand dollars. 1% = $10 per $1000 of principal over the course of a year.

Some cards have 0% interest but minimum monthly payments you have to make. One mistake, and they'll whack you with 18-25%, sometimes retroactively. It's definitely not arbitrage, because true arbitrage is risk-free. It's a game of "can I pay you $10 for time to invent a silly excuse to get you to pay the penalty rate."

lunarfollies

lowonmemory Wrote:
-------------------------------------------------------
> 0% APR balance transfer cards have a 3% flat fee
> on the balance transferred. You end up paying ~3%
> APR on credit card.


That's right. And then you realize that they often don't have the promotional rate for a whole year. You pay the 3% fee, but pay the whole thing off in 6 months, because that's the promotion... their IRR for 6 months has been 6%. Not bad, considering that they were telling you in large letters that you'll be paying ZERO PERCENT!


If you make a mistake, and get the penalty rate, then you have to pay the rate, AND if you decide to pay it off to avoid continuing with the penalty rate they get their principal back early, while keeping the transfer fee... IRR shoots through the roof!


Damn' if feels good to be a banker!



Edited 1 time(s). Last edit at Friday, August 19, 2011 at 01:39PM by bchadwick.

xilinx_altera

bchadwick Wrote:
-------------------------------------------------------
> I've occasionally bought computer equipment with 6
> month or 1 year free financing. Then taken the
> cash I would have paid for the product and put it
> in a high yield savings account. Then paid the
> bill just before it's due.
>
> It works, but I'm not really sure the stress of
> remembering to jump through all the hoops is worth
> the trouble for an extra 1% on a few hundred or
> thousand dollars. 1% = $10 per $1000 of principal
> over the course of a year.
>
> Some cards have 0% interest but minimum monthly
> payments you have to make. One mistake, and
> they'll whack you with 18-25%, sometimes
> retroactively. It's definitely not arbitrage,
> because true arbitrage is risk-free. It's a game
> of "can I pay you $10 for time to invent a silly
> excuse to get you to pay the penalty rate."

Yeah Bchadwick I was think more along these lines. I have loans due at 8% interest which have to be paid in cash, can't put them on credit cards. I was think of just putting everything on my cc, running it up a couple of grand and using that money I would have paid toward gas, groceries etc. in cash, towards my loans. This seems like a 100% risk free way to make the spread as long as you make the monthly 15$ payments and can deliver at the end.

grharmeyer

lowonmemory Wrote:
-------------------------------------------------------
> 0% APR balance transfer cards have a 3% flat fee
> on the balance transferred. You end up paying ~3%
> APR on credit card.

I paid 0% for six months through HSBC. There was no 3% fee.

sabaruch

Check out fatwallet.com

There is more information on this then you could possibly want.

Check out their finance forum under app-o-Rama. People made serious loot on this back in the day.

_____________________________________________________
-My friend QQQbbe, we will never forget you.

infinitybenzo

yes, cash advances are 99.9% of the time accruing interest from the get go

ayaz_mahmud369

Im not sure why I even clicked on this, but I am surprised by the comments in here.

Yes, there is an arbitrage opportunity, but it depends on a ton of factors, and the money that will be made on the arbitrage will be small.

Firstly, credit cards will send you "convenience checks" these can be used to generate cash. Most offers I have seen do require some sort of fee to accept the offer, say 3%, but some have no fee.

Utilizing your credit will effect your credit score, credit used/credit available should be low. This ratio effects your score.

The real problem is that there is not much money to be made. Lets assume you can borrow $100,000 for free over 12 months, at very best you would be able to make $3,000. That is if you can find a place that will pay you 3% over 12 months, which I think is unlikely, it also assumes that 12 months is how long they will lend you the money a 0%.

kickthatcfa

jcole21 Wrote:
-------------------------------------------------------
> Check out fatwallet.com
>
> There is more information on this then you could
> possibly want.
>
> Check out their finance forum under app-o-Rama.
> People made serious loot on this back in the day.

Nice another FWF'er.

andylin83

Just came across this post and it is definitely very late by now.  Anyway, here's my 2 cents.
This would not be possible simply due to few factors:
1. As someone mentioned before, balance transfer on 0% transfer required an upfront fee that's typically 3-4% depends on the bank, so right there you have a cash outflow.   
2. The zero percent is typically a promotional rate for 6-12 months, after that the rate goes back to your purchase rate. However, CDs for the same duration are typically less than 2%.
3.  In order to keep up with the promotion, you need to make minimal payment every cycle. However, CD do not pay out until maturity and early withdraw with incur penalties.
4. Lastly, if you missed two payments, the penalites rate will kick in at cash advance rate, that's a killer.

Bottom line, It's not going to work.

ps. I don't quite understand one of the reply who bought Mercedes at 2% and and earn 3.5% on the balance.