0% interest $100K loan for a year?

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date 0% interest $100K loan for a year? ahren.hartman 10-08-2006  Re: 0% interest $100K loan for a year? HW \"Skip\" Wel... 10-08-2006  Re: 0% interest $100K loan for a year? Mark Bole 10-08-2006  Re: 0% interest $100K loan for a year? ahren.hartman 10-09-2006  Re: 0% interest $100K loan for a year? joetaxpayer 10-09-2006  Re: 0% interest $100K loan for a year? nospam 10-09-2006  Re: 0% interest $100K loan for a year? herlihyboy 10-10-2006  Re: 0% interest $100K loan for a year? nospam 10-10-2006  Re: 0% interest $100K loan for a year? Michael Sulliva... 10-13-2006  Re: 0% interest $100K loan for a year? Mark Bole 10-13-2006  Re: 0% interest $100K loan for a year? Mark Bole 10-09-2006  Re: 0% interest $100K loan for a year? zxcvbob 10-09-2006  Re: 0% interest $100K loan for a year? John 10-14-2006
Posted by on October 8, 2006, 7:06 pm So I have a credit card company that wants to give me a $100K cash advance for 12 months at 0% interest (maximum fee for a cash advance is $75). What is the best way to invest this money? I figure the safest is a Vanguard Money Market for a year at about 5% which will net around $5K. What else should I consider doing with this really cheap loan? I have no debt (other than my mortgage which is at 5% for 30 years). Suggestions? Thanks- Ahren Posted by HW \"Skip\" Weldon on October 8, 2006, 7:25 pm On Sun, 8 Oct 2006 18:06:39 -0500, ahren.hartman@gmail.com wrote: >So I have a credit card company that wants to give me a $100K cash >advance for 12 months at 0% interest (maximum fee for a cash advance is >$75). >What is the best way to invest this money? I figure the safest is a >Vanguard Money Market for a year at about 5% which will net around $5K. > What else should I consider doing with this really cheap loan? Ahren before you sign or agree to anything I would like to hear your thoughts on the following: How does a company make money by letting you hold $100K of their cash at a max cost of $75 for one year? -HW "Skip" Weldon Columbia, SC Posted by Mark Bole on October 8, 2006, 9:49 pm HW "Skip" Weldon wrote: > On Sun, 8 Oct 2006 18:06:39 -0500, ahren.hartman@gmail.com wrote: >>So I have a credit card company that wants to give me a $100K cash >>advance for 12 months at 0% interest (maximum fee for a cash advance is >>$75). I agree with Skip's suggestion. This is too good to be true. Even with a well-established account and good credit score, I don't see you getting offered more than $15-$25K max, and that is only because they think you won't pay it back with the given time period so they can start charging you a high rate of interest. After all, what credit card comes with a $100K credit limit? (unsecured personal loan). >>What is the best way to invest this money? I figure the safest is a >>Vanguard Money Market for a year at about 5% which will net around $5K. >>What else should I consider doing with this really cheap loan? No, much better and safer than that would be a 13-month CD at 6% APY. You can take care of the extra month, right? -Mark Bole Posted by on October 9, 2006, 5:02 am Since it's a credit card, they figure you won't have the discipline to pay the whole thing off in a year and then the interest rate kicks in and then they make their $$. Isn't that how CC companies make most of their money? Obviously, it's not a great business arrangement for them if I pay the balance off after 12 months and they only make $75. Statistically, most people that take out cash advances don't though and then they pay big interest. I know one of the keys to these deals is to not charge anything else on that card since the composite interest rate goes up on the total balance regardless if you pay the original $100K off after 12 months. This is in the fine print of their agreements - also a very big trap for average consumers. Ahren HW "Skip" Weldon wrote: > On Sun, 8 Oct 2006 18:06:39 -0500, ahren.hartman@gmail.com wrote: > > >So I have a credit card company that wants to give me a $100K cash > >advance for 12 months at 0% interest (maximum fee for a cash advance is > >$75). > >What is the best way to invest this money? I figure the safest is a > >Vanguard Money Market for a year at about 5% which will net around $5K. > > What else should I consider doing with this really cheap loan? > > Ahren before you sign or agree to anything I would like to hear your > thoughts on the following: How does a company make money by letting > you hold $100K of their cash at a max cost of $75 for one year? > > > -HW "Skip" Weldon > Columbia, SC Posted by joetaxpayer on October 9, 2006, 9:35 am ahren.hartman@gmail.com wrote: > Since it's a credit card, they figure you won't have the discipline to > pay the whole thing off in a year and then the interest rate kicks in > and then they make their $$. Isn't that how CC companies make most of > their money? > > Obviously, it's not a great business arrangement for them if I pay the > balance off after 12 months and they only make $75. Statistically, > most people that take out cash advances don't though and then they pay > big interest. > > I know one of the keys to these deals is to not charge anything else on > that card since the composite interest rate goes up on the total > balance regardless if you pay the original $100K off after 12 months. > This is in the fine print of their agreements - also a very big trap > for average consumers. > > Ahren > Keep in mind that from the link Elle posted http://en.wikipedia.org/wiki/Credit_score this will likely impact your credit score, the exact amount I cannot say. These are the components of the credit score; * 35% punctuality of payment in the past (only includes payments later than 30 days past due) * 30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits) * 15% length of credit history * 10% types of credit used (installment, revolving, consumer finance) * 10% recent search for credit and/or amount of credit obtained recently It would appear the 30% for 'capacity used' will take a hit, as a $100K credit card taken out and maxed up is a negative. Depending how many other accounts you have, the length will get averaged down some. And the last two factors will also be impacted. I don't know where you are in your borrowing life (need for mortgage, car loan, etc.), but this transaction has the potential to impact 4 of the 5 FICO factors. I'd be very curious to see if you pulled your score before and after, what the true impact was. 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