Getting a 18 months 0% credit card to invest

[helloyou]

Hello,

I've seen so many institution getting free loans and me as small guy can't get anything. I only see high rate (6%+) borrowing and it's not worth it.

I came across this 0% credit card for 18 months:


It looks like a good deal to preserve cash? And maybe invest some?

I don't have any problem with cash, and have some to spare. But it's all invested. So if I get this I can get a bit more cash to work and maybe invest a bit more?

I won't have any problem to repay at any time, I can just sell some of my stock if needed. But a 0% loan for 18 months sounds very appealing...


Anyone tried something like this? What's your experience?

[Assetup]

It's just another way of leveraging your money imo.  What happens if they approve you for 10k and you invest that 10k but we steadily drop for 18 months and your 10k is only worth 5 k in the market?  You better be able to come up with the difference or you owe a bunch of back interest not to mention you have to liquidate a losing position.  Don't get me wrong I see some advantages but I think it's a different flavor of stock picking/timing.

[helloyou]

It's just another way of leveraging your money imo.  What happens if they approve you for 10k and you invest that 10k but we steadily drop for 18 months and your 10k is only worth 5 k in the market?  You better be able to come up with the difference or you owe a bunch of back interest not to mention you have to liquidate a losing position.  Don't get me wrong I see some advantages but I think it's a different flavor of stock picking/timing.

Indeed. Its a sort of timing and I m happy to take the loss to liquidate my position at low in 18 month time.

Much better than margin loan which would automatically liquidate at the lowest

[Assetup]

Yeah definitely better than a margin loan just smaller maximum amount and they don't force you to liquidate

[vand]

Be very careful what they count as "spending".

I did this with a CC once to buy assets but part-way through they changed their definitions and of what constitutes "spending" and asset purchases which I was paying through Transferwise got switched from being defined as a purchase to being cash payment.

[Dicey]

There is typically a small (2-3%) fee to access this money. Be sure to read the fine print. I'd be tempted to use the cash to do bank churning. Much safer than investing for such a short time.

There was a forumite who was very masterful zt this and was using tbis method to wipe out debts/create wealth. Anyone remember who it was?

[slappy]

Isn't this sort of thing generally seen as a bad idea? I know OP is not in the US, so maybe the rule are different.

OP, two big concerns:

1) As someone else mentioned, there is generally a fee to access cash vs just "spending"
2) Generally, at the end of the term, if you don't pay the whole thing back, you get hit for the interest for the whole term. So in the example given above, if your market value drops to $5k and you don't have any other assets to use to pay it back, you could potentially get hit for 18 months of interest on the $5k that you don't have.

Moral of the story...read the fine print.

[Michael in ABQ]

In college I had most of my expenses covered through grants, military tuition assistance and scholarships. I didn't really need the subsidized loans that were offered to me but figured I could invest the money for a couple of years at 0% interest and pay it back after I graduated.

I graduated in 2008 and was heavily invested in financial stocks.

I'll let you figured out how well my arbitrage plan worked (not very well).


Borrowing even $20,000 at 0% (assuming $0 in fees and that you can get a credit limit that high) and earning a return of say 5% will net you $1,500 over 18 months. On the other hand, it could easily drop that much. A truly safe return in something like a CD or high interest savings account is only going to be maybe 2%, or $600.

[bbqbonelesswing]

Don't finance a long-term position with a short-term loan.

[Pizzabrewer]

Yup, it’s known as “stoozing” and can be very useful.

There is no fee to access the 0% money if it’s done organically by shifting your normal spending onto the card. Balance transfers and “convenience checks” to access the money come with a 3-5% fee.

I’ve advocated for this in the past and was roundly blasted on this forum. I plowed ahead undaunted and have been carrying between $20k and $50k at a time across a number of cards for several years. As the 0% term nears expiration I’ve always found more cards available with 0% offers, often with a cash signup bonus.

Even if you do nothing with the money, IMO it’s worth it to purchase now and pay 18 months later.

[Jack0Life]

Yup, it’s known as “stoozing” and can be very useful.

There is no fee to access the 0% money if it’s done organically by shifting your normal spending onto the card. Balance transfers and “convenience checks” to access the money come with a 3-5% fee.

I’ve advocated for this in the past and was roundly blasted on this forum. I plowed ahead undaunted and have been carrying between $20k and $50k at a time across a number of cards for several years. As the 0% term nears expiration I’ve always found more cards available with 0% offers, often with a cash signup bonus.

Even if you do nothing with the money, IMO it’s worth it to purchase now and pay 18 months later.

Thumbs up !!

To the OP, it sounds fine but I'm thinking the most that card is going to give you is a $10k limit. Not much but buts interest free money for 18 months. Yeah, I would just use my spending on the CC instead of finding ways to access cash from it.
I have a Chase Reserve that I will probably end this year unless I get some type of credit on the huge annual fee. It has a $50k limit on it. I know Chase Freedom has a 18 months 0% of spending right now. Thinking about getting the Freedom and move my $50k credit limit over before I cancel the Reserve. $50k interest free spending for 18 months sounds good but I might get myself in trouble for over spending.

[helloyou]

Thanks guys. I've made my order :)

Due to my lack of history, and not being homeowner, I could only secure a 12 month interest free card. But I can still build it up over time

[Telecaster]

Thumbs up !!

To the OP, it sounds fine but I'm thinking the most that card is going to give you is a $10k limit. Not much but buts interest free money for 18 months. Yeah, I would just use my spending on the CC instead of finding ways to access cash from it.
I have a Chase Reserve that I will probably end this year unless I get some type of credit on the huge annual fee. It has a $50k limit on it. I know Chase Freedom has a 18 months 0% of spending right now. Thinking about getting the Freedom and move my $50k credit limit over before I cancel the Reserve. $50k interest free spending for 18 months sounds good but I might get myself in trouble for over spending.

Think about what happens at the end of 18 months.   

1.  The value of your investments has gone up, and you pay off the card and you have some extra money.

2.  The value of your investments has gone down, and you have a guaranteed loss.   And you have to make up that loss with monies from some other source.

So what extra reward are you getting for taking on the risk of a wipeout?  You get the investment gains over the 18 months minus the spending over the 18 months.  And remember, only the first month's spending is interest free for the full 18 months.  So unless it is a raging bull market, it won't be a whole lot of money.   

This is what they call a high risk, low reward strategy.

[ninja_]

Personally, I'd play the credit card rewards game rather than trying to take advantage of this. There are quite a few cards (in the US) that you can signup for, and spend a few thousand dollars (money you'd normally spend), and in return the credit card company will give you ~$500 in points, cash, etc. Do this several times, and you'll easily blow away any return you could get here with a lot less downside risk.

[slappy]

Personally, I'd play the credit card rewards game rather than trying to take advantage of this. There are quite a few cards (in the US) that you can signup for, and spend a few thousand dollars (money you'd normally spend), and in return the credit card company will give you ~$500 in points, cash, etc. Do this several times, and you'll easily blow away any return you could get here with a lot less downside risk.

I do agree with this, but I think OP has posted before about very low monthly spending. So it might not be as easy to hit those numbers.

[vand]

I don't really know what you are hoping to accomplish with it, as I gather from your other posts that you've got half a million bucks stashed away, so what are you hoping to accomplish with an extra 1% that you can't already do?

[helloyou]

Think about what happens at the end of 18 months.   

1.  The value of your investments has gone up, and you pay off the card and you have some extra money.

2.  The value of your investments has gone down, and you have a guaranteed loss.   And you have to make up that loss with monies from some other source.

So what extra reward are you getting for taking on the risk of a wipeout?  You get the investment gains over the 18 months minus the spending over the 18 months.  And remember, only the first month's spending is interest free for the full 18 months.  So unless it is a raging bull market, it won't be a whole lot of money.   

This is what they call a high risk, low reward strategy.

Why is it high risk, low reward?

I see it as low risk, low reward instead. The stock can go up, or down, or stay the same.

It can equally go up as it can go down. Really I can't know. I'd say it's a 50/50 so the risk and rewards are equally low

[helloyou]

Personally, I'd play the credit card rewards game rather than trying to take advantage of this. There are quite a few cards (in the US) that you can signup for, and spend a few thousand dollars (money you'd normally spend), and in return the credit card company will give you ~$500 in points, cash, etc. Do this several times, and you'll easily blow away any return you could get here with a lot less downside risk.

I've been thinking about it but my spending level is extremely low. My biggest cost is my rent which is by direct debit so I can't get points on it.

I don't go much on restaurants as well and now with the lockdown there isn't much travel either... I won't make any money with a reward card.

[helloyou]

I don't really know what you are hoping to accomplish with it, as I gather from your other posts that you've got half a million bucks stashed away, so what are you hoping to accomplish with an extra 1% that you can't already do?

I'm trying to be an investor and want to pick up great stock. So any cash I can have can be useful to buy good stock.

Even 1% on half million is £5k, but the limit can easily go to $£20k+ over time (I have a colleague who was using credit card for a long time having such a high amount of credit card debt)

But it's true that in any case it's a small amount of my net worth so I can't see it as high risk even if a 50% crash were to happen in 18 months and I have to sell some stock to pay it back.

Just trying to get a little bit more gain.

[vand]

I don't really know what you are hoping to accomplish with it, as I gather from your other posts that you've got half a million bucks stashed away, so what are you hoping to accomplish with an extra 1% that you can't already do?

I'm trying to be an investor and want to pick up great stock. So any cash I can have can be useful to buy good stock.

Even 1% on half million is £5k, but the limit can easily go to $£20k+ over time (I have a colleague who was using credit card for a long time having such a high amount of credit card debt)

But it's true that in any case it's a small amount of my net worth so I can't see it as high risk even if a 50% crash were to happen in 18 months and I have to sell some stock to pay it back.

Just trying to get a little bit more gain.

Good luck, but the problem is that using credit to invest - even if it is 0% - completely changes the game that you are playing, because your investments become time-sensitive. You do not have the luxury of just sitting back and accumulating assets.

Good investment decisions are not made when you know that you have to return the money (or find another way to repay it) in 12 months' time.

[helloyou]

Good luck, but the problem is that using credit to invest - even if it is 0% - completely changes the game that you are playing, because your investments become time-sensitive. You do not have the luxury of just sitting back and accumulating assets.

Good investment decisions are not made when you know that you have to return the money (or find another way to repay it) in 12 months' time.

Indeed. I actually want to use it as firepower rather than just add the money immediately and wait.

I want to be able to add cash on dip, and also during the drop few months ago, I was at higher risk of getting margin loans than I was comfortable with at 30% (I'd like to be under 20% margin), and I was scrapping savings there and there to increase my money pot to minimise risk

Some additional temporary cash reserve I could add during downturn is incredibly useful.


I of course paid back the margin when the stock recovered, so now I don't have any margin loan and paid it all back. I even have some additional un-used cash. But I'm ready to buy in on the next drop

[slappy]

Good luck, but the problem is that using credit to invest - even if it is 0% - completely changes the game that you are playing, because your investments become time-sensitive. You do not have the luxury of just sitting back and accumulating assets.

Good investment decisions are not made when you know that you have to return the money (or find another way to repay it) in 12 months' time.

Indeed. I actually want to use it as firepower rather than just add the money immediately and wait.

I want to be able to add cash on dip, and also during the drop few months ago, I was at higher risk of getting margin loans than I was comfortable with at 30% (I'd like to be under 20% margin), and I was scrapping savings there and there to increase my money pot to minimise risk

Some additional temporary cash reserve I could add during downturn is incredibly useful.


I of course paid back the margin when the stock recovered, so now I don't have any margin loan and paid it all back. I even have some additional un-used cash. But I'm ready to buy in on the next drop

So you are trying to time the market?

[helloyou]

So you are trying to time the market?

Only when I feel the market is being moved by political intent:
- Trump messaging on trade war last year I moved to treasury it was a good trade
- Beginning of the year when Covid was coming I sold all it was a good choice
- The recent Gambit from Boris on the brexit trade I bought last Friday it was good choice as well. I regret not having bought way more (only took a small position)
- And now the stimulus package.

I of course often get it wrong, but sometime it's so obvious it feels like a waste not trying to benefit from it

[slappy]

So you are trying to time the market?

Only when I feel the market is being moved by political intent:
- Trump messaging on trade war last year I moved to treasury it was a good trade
- Beginning of the year when Covid was coming I sold all it was a good choice
- The recent Gambit from Boris on the brexit trade I bought last Friday it was good choice as well. I regret not having bought way more (only took a small position)
- And now the stimulus package.

I of course often get it wrong, but sometime it's so obvious it feels like a waste not trying to benefit from it

How was selling when covid was coming a good choice? The market has done quite well since then.

[helloyou]

So you are trying to time the market?

Only when I feel the market is being moved by political intent:
- Trump messaging on trade war last year I moved to treasury it was a good trade
- Beginning of the year when Covid was coming I sold all it was a good choice
- The recent Gambit from Boris on the brexit trade I bought last Friday it was good choice as well. I regret not having bought way more (only took a small position)
- And now the stimulus package.

I of course often get it wrong, but sometime it's so obvious it feels like a waste not trying to benefit from it

How was selling when covid was coming a good choice? The market has done quite well since then.

It was my best investment decision EVER! I've made a 10% gain on my total portfolio just by doing that, and I was cautious and didn't buy at low.

But basically I sold on end of feb. Then there was a big crash.

And started buying gradually after the fed put the rate to 0% and started all the purchase program.

I invested gradually and missed most of the gain, and could easily have over 50% gain if I've put 100% in at the low... and if I didn't try to edge the gbp against the usd (i lost 10% in exchange rate due to usd going much lower)