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Raising money on a credit card to buy a boat? Are you crazy!
Well read on and we will tell you how to turn a credit card into a cheap loan.
The cheapest credit card interest rates are lower than the cheapest loan rates but in general we do not regard credit card debt as a long term loan like a personal loan or re-mortgage. What we have to do is pick the right products and you could end up with a very cheap loan that is even more flexible than a personal loan.
The concept here is 'balance transferring' - this usually means a new card pays off the debts on your current card(s) for you, so you owe the new card the money instead. The reason to do this is because many credit cards offer special cheap rates for balance transfers, so it's much cheaper.
Now you need to get a card which has a 'life of balance transfer offer'. This means the cheap rate remains until all the debt you shift to it has been repaid. This is the perfect vehicle to replicate a loan as once you have the card, you now have the credit available until it's repaid. This will become clear in the step by step guide later. At the time of writing the best rate for a 'life of balance transfer offer' is 4.9%, that's cheaper than the cheapest personal loan.
OK, what we want to do is get money in the bank for our loan and the way we do this is to use another card as an intermediary. This card must enable your balance to be in credit and ideally be able to transfer the in credit balance to your bank at no cost. Fortunately there is a card that will allow this. Egg Money is a hybrid card designed for spending on, and so it encourages you to have an 'in-credit balance', and because of that, when you're in-credit, unlike other cards you can withdraw cash from a cash machine or get it to pay money into your bank account without a fee.
With your new 'life of balance transfer' card do a balance transfer for the amount you require to your intermediary card (Egg Money). You now have the debt (loan) on your new 'life of balance transfer' card at say 4.9%. Cheap as chips!
You can now transfer the in-credit balance (the loan) into your bank from Egg Money free of charge.
Now set up a direct debit to pay the debt each month. This method can work out more flexible than a personal loan as you could make additional extra payments to pay off the debt quickly without any penalty.
This may be good if moving onto your new boat will reduce your expenses, such as high property rental, you could use the savings to pay off the credit card faster saving even more in interest.
On the other side of the coin you could also pay just the minimum payment during a period of hardship if needed. Do not do this for long as this will be more expensive in the long term.
Here is a quick step by step guide to help explain.
Step 1. Life of balance card to Egg Money
Loan needed £5,000
Bank account £0
Egg Money £0
Life of balance card £0
Now you ask your life of balance card to do a £5,000 balance transfer from Egg Money. This means it will pay £5,000 off the Egg Money card, even though no debt there exists. The fact no debt exists shouldn't normally be a problem, as most credit card’s terms don’t specify a debt must exist to do a balance transfer, however if specifically asked you must tell them by law.
Step 2. Egg Money to Current Account
Loan needed: £5,000
Bank account: £0
Egg Money: £5,000 in credit
Life of balance card: £5,000 in debt
Now we need to get the money from Egg Money into your bank account. This is simple as Egg Money and do a balance transfer to your bank account. In other words it now pays the £5,000 into your bank account at no charge because you’re in credit.
Step 3. Current Account to Loan
Loan needed: £5,000
Bank account: £5,000
Egg Money: £0
Life of balance card: £5,000 in debt
You now have £5,000 in your bank account for the loan and £5,000 on your life of balance card at 4.9%. In other words you now have a 4.9% loan
A final warning. Never use the life of balance card for purchases. Do that and the lender will lodge your repayments towards paying off the cheap debts first. This means your expensive debts from purchasing are trapped in, quickly gaining interest until you’ve paid off all of the loan debt. Put the card in a safe place so you do not use it.
So there you have it, a great way to use cheap credit cards as a long term cheap loan to purchase your new boat.
Companies and products in this article were correct at time of writing but we advise you to check all products and companies for the latest deals. These are for illustration only and do not imply any form of recommendation.
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