Using 0% APR credit cards for arbitrage? interest, something, principal, currently

kmf229

Has anyone thought of this. I've seen enough ads on TV and thought of this while doing my forwards/ futures readings last night. Why couldn't you simply purchase a 1% CD (I know rates are lower than that currently, but it's an example), and then simply pay back the credit card with the principal from the CD and keep the interest? Am I missing something here?

ohai

people do this all the time. for example, a few years ago I bought a mercedes with 2% interest from the dealer, and deposited the balance of the purchase into an account that earns 3.5%.

bodhisattva

Only thing I'm worried about is having it wreck my credit score. Any idea how much it will drop it?

meghanjackson

MissCleo Wrote:
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> Only thing I'm worried about is having it wreck my
> credit score. Any idea how much it will drop it?

Why would it "wreck" your credit score?

Basically if you make whatever payments you need to, you'll be fine. The CC company is banking on you screwing up...

yalo

@Miss Cleo, Even with 0% APR cards there is still interest charged for cash advances! Which is around 20% APR. Sorry to kill your dream!

HuskyGrad2010

jorgeam86 Wrote:
-------------------------------------------------------
> MissCleo Wrote:
> --------------------------------------------------
> -----
> > Has anyone thought of this. I've seen enough
> ads
> > on TV and thought of this while doing my
> forwards/
> > futures readings last night. Why couldn't you
> > simply purchase a 1% CD (I know rates are lower
> > than that currently, but it's an example), and
> > then simply pay back the credit card with the
> > principal from the CD and keep the interest? Am
> I
> > missing something here?
>
> I think, on average, the 0% APR applies to
> purchases made with the credit card. Cash
> advances, which I assume you would use to purchase
> the CD, are charged interest from the day it is
> taken out.

I believe one of the components to the fico score is your debt capacity utilization. So if you have a cc limit of 15,000 and load up 14,000 on to the card it will ding your score.

smuggycfa

There's a way to do it and I penciled out one time but then didn't follow up for some reason -- this was a few years ago and I didn't have a high enough credit card balance to make it worthwhile, I think. There are a couple of books on Amazon you can buy that show the mechanics. One of them is called something like "How to Take Advantage of People Trying to Take Advantage of You" or something lol.

And Chuckrox8 is right, if you are near full utilization, your score drops.

ryanlb

Or you could just buy five Mercedes' to get 0% auto loans, then reinvest the loans in certificates of deposits. Of course, you would then have five Mercedes'. But since your purpose was to get the loans, you can just trash the cars by doing donuts and ramp jumps in nearby construction yards.

BC_MBA_student

Uh, didn't you use the loan to buy the car? Where is the $$ for the CD coming from?

(yes, I do realize you were being facetious, and I liked where you were going. I need a doughnut now).

cfalevel2011

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