Bridge Loan for Tax Credit

[Extrion]

Got an idea due to mail from my bank recently offering convenience checks for my credit card. I know normally bad idea, but they are offering a 0%APR until May '19. As long as I don't use the card for anything else there will be no interest accrual, not really that hard to since I don't normally use it anyway. Looking at the fine print, the fee is 2%, instead of the normal 4%, so $150 fee for a 9-10 month loan of $7500. I would rather use that now to finance less versus making a $7500 payment next year. So if I take the cash advance after I get my loan set, the high balance on the credit card shouldn't effect my credit score for this loan. I have no other loans that I would need to worry about trying to get in the next year, so that shouldn't be an issue. Current credit score is around 800, so I shouldn't have an issue getting a decent rate for a loan. Local credit union is showing 2.69% for 72 mos and it's one I can join. Planning to put down 10K anyway, but the extra $7500 drops the monthly payment a fair bit.

So does anyone see any flaws with my plan that I may have overlooked in my excitement?

 

[insaneoctane]

No, but if you are worried enough about the $150 to post here then I would suggest that with your 800 credit score you should be able to find your loan for 1.99%, even at 72 months. It's not easy, but dig hard enough and you will find somewhere that you can join that will do it....

 

[Extrion]

Mostly posting here to make sure there wasn't something I might have overlooked, never used convenience checks before and just wanted to see if I was missing something. I'm pretty thorough when looking over things like but never hurts to run it by someone else.
I'm not really concerned about the $150 as much as I prefer to finance the lesser amount and pay more if I choose. Same with my mortgage, chose 30 year, but make extra payments and pay extra each month, will pay off in about 19 years, but don''t have to pay several hundred a month more if something came up. Same with the car, would prefer the extra amount be my option if I choose, I usually don't take the full term before I pay off a loan if I can help it.

I've been looking at the credit unions around me and that seems to be the lowest for a 72 month, at least that is advertised, I haven''t been in yet to talk to anyone as I don't want to get the pre-approval to far in advance.

 

[AZ Desert Driver]

Mostly posting here to make sure there wasn't something I might have overlooked, never used convenience checks before and just wanted to see if I was missing something. I'm pretty thorough when looking over things like but never hurts to run it by someone else.
I'm not really concerned about the $150 as much as I prefer to finance the lesser amount and pay more if I choose. Same with my mortgage, chose 30 year, but make extra payments and pay extra each month, will pay off in about 19 years, but don''t have to pay several hundred a month more if something came up. Same with the car, would prefer the extra amount be my option if I choose, I usually don't take the full term before I pay off a loan if I can help it.

I've been looking at the credit unions around me and that seems to be the lowest for a 72 month, at least that is advertised, I haven''t been in yet to talk to anyone as I don't want to get the pre-approval to far in advance.

Because the banks are talking about increasing the loan rate - post fed rate increase - it might be wise to Lock your rate now instead of pre-approval far in advance.

 

[SageBrush]

Be sure that the balance on your credit card is ZERO before you use a check for a cash advance from that credit card.

#2 Unless you are mired in debt and/or your monthly income is low the high credit score will more than cover your two credit requests. You can always wait for the time to actually pay for the car before you write the check so that your utilization will be low. I'll bet though that you do not have to worry about timing your credit requests.

#3 Credit cars have minimum monthly payments that can go as high as 3% of principal each month but are usually around 1%. Check the fine print of your balance transfer and then confirm via e-mail the detail. This part of the deal may well be enough to throw a wrench in your monthly payment plans. A $7500 loan starts out at $110 a month per 2% MPR and 72 month term

 

[Craig-Tx]

Alternatively, what I've done, is adjust my W4 Withholdings significantly higher so they will take much less taxes out throughout the year. Rather than getting a big refund next spring, I'll get it over the next 9 months. Sure that won't help with a bigger down payment, but it also gets the money in my hands quicker.
I see a big tax refund as a free interest free loan I gave the government. Ideally I try to simply owe a small amount when I finally do my taxes.

 

[Carnook]

So does anyone see any flaws with my plan that I may have overlooked in my excitement?

I do: you can't afford the Model 3.

Of course I don't know you personally, but this is advice I would give to anyone financing a car over 72 months: they can't afford it. 36 months (after down payment) is a good benchmark for whether the car is affordable. Anything longer than that is not advisable.

Save more money, make a larger down payment, and finance the car over 36 months.

 

[BrokerDon]

Alternatively, what I've done, is adjust my W4 Withholdings significantly higher so they will take much less taxes out throughout the year. Rather than getting a big refund next spring, I'll get it over the next 9 months. Sure that won't help with a bigger down payment, but it also gets the money in my hands quicker.
I see a big tax refund as a free interest free loan I gave the government. Ideally I try to simply owe a small amount when I finally do my taxes.

This is EXACTLY the way to handle changes in your tax situation. Just use the worksheet on pages 3 and 4 of the W-4 that hardly anybody knows exists... let alone actually completes to adjust their withholding. I've had up to 18 exemptions using the W-4 form... with just my wife, 2 kids, and I. Balance of exemptions came from real estate investments and tax credits which significantly lowered my federal and state taxes.

No need for a "convenience checks" for your credit card at all. Save them for real emergencies... hopefully never!

 

[davedavedave]

Me too!

This is EXACTLY the way to handle changes in your tax situation. Just use the worksheet on pages 3 and 4 of the W-4 that hardly anybody knows exists... let alone actually completes to adjust their withholding. I've had up to 18 exemptions using the W-4 form... with just my wife, 2 kids, and I. Balance of exemptions came from real estate investments and tax credits which significantly lowered my federal and state taxes.

No need for a "convenience checks" for your credit card at all. Save them for real emergencies... hopefully never!

 

[Extrion]

I do: you can't afford the Model 3.

Of course I don't know you personally, but this is advice I would give to anyone financing a car over 72 months: they can't afford it. 36 months (after down payment) is a good benchmark for whether the car is affordable. Anything longer than that is not advisable.

Save more money, make a larger down payment, and finance the car over 36 months.

It's not that I can't afford it, I've been putting a $1000 month back for the last few months, which I should have been doing the past 2 years, so I can, it's that I just don't want a $1000/mo fixed payment. I would save for longer, but I got my configure e-mail and the car I'm currently driving hasn't passed emissions inspection due to the computer not reading correctly and I have no desire to put that much money into it, I've had it for 8 years and it's 12 years old. It also leaks water into the trunk and if I roll down one of the rear windows it won't roll back up, so I'm out of time as far as that goes unless I spend more then it's worth to repair.

I've always just rather had the payment lower and pay extra, I've never let a car loan go to full term and I'd still have a bit of flexibility if I have something come up, like the MRI I just had, that I'd rather not put on credit. I've never spent this much on a car before, highest payment when I was buying new cars, was around $650 for $36K vehicle, but I was a GM employee and getting the cars at dealer cost with the 0% loans through GMAC, can't argue with free money. But you can''t get that kind of rate through a bank/CU. Guess just seeing a $950 payment for a car is a bit of a shocker that hasn't been something I had ever considered doing before, in my mind that's relegated to rent or mortgage payments.

I think it's more of a psychological thing than anything else at this point. Until I moved to NY, the thought of spending $175K on a house was way more then I would have thought to spend when I lived in Indiana, but that isn't even that expensive where I live now and I thought I'd never be able to afford that, but after I had to do it, I realized it wasn't the issue I had assumed it would be.

 

[Extrion]

This is EXACTLY the way to handle changes in your tax situation. Just use the worksheet on pages 3 and 4 of the W-4 that hardly anybody knows exists... let alone actually completes to adjust their withholding. I've had up to 18 exemptions using the W-4 form... with just my wife, 2 kids, and I. Balance of exemptions came from real estate investments and tax credits which significantly lowered my federal and state taxes.

No need for a "convenience checks" for your credit card at all. Save them for real emergencies... hopefully never!

I've always ripped up and thrown out the checks before, I actually didn't see this with the checks, but in an e-mail from my bank about the 0% until May '19 deal. I'll have to look at the W-4 worksheet, as you've said, never really paid much attention before. Never had to look at that due to a tax credit or the like before coming back to me at tax time. Thanks for the tip.

 

[Extrion]

Be sure that the balance on your credit card is ZERO before you use a check for a cash advance from that credit card.

Yeah, my balance is 0, but I would make sure, also have to check on any recurring annual payments as well.

#2 Unless you are mired in debt and/or your monthly income is low the high credit score will more than cover your two credit requests. You can always wait for the time to actually pay for the car before you write the check so that your utilization will be low. I'll bet though that you do not have to worry about timing your credit requests.

Nope, only debt is my mortgage and I'm definitely not on lower scale for income, but my family growing up didn't have lots of extra money, and I find myself thinking I can't afford things that I most definitely can, even though I'm 41, that thinking is still sticking around until I force myself to look at things objectively.

#3 Credit cars have minimum monthly payments that can go as high as 3% of principal each month but are usually around 1%. Check the fine print of your balance transfer and then confirm via e-mail the detail. This part of the deal may well be enough to throw a wrench in your monthly payment plans. A $7500 loan starts out at $110 a month per 2% MPR and 72 month term

If I decide to go this route I will look everything over again, and most likely 2 or 3 times, as I like to overthink things. I'm sure you couldn't tell that from the above, LOL.

 

[BrokerDon]

I've always ripped up and thrown out the checks before, I actually didn't see this with the checks, but in an e-mail from my bank about the 0% until May '19 deal. I'll have to look at the W-4 worksheet, as you've said, never really paid much attention before. Never had to look at that due to a tax credit or the like before coming back to me at tax time. Thanks for the tip.

You're welcome! I explained this hundreds of times during the past 36 years selling industrial buildings to business owners whose loan payments would be higher than their their current rent PRE-TAX for the same size industrial building. However their ACTUAL cash flow would the almost identical when they factored their income tax savings and calculated their AFTER-TAX cost after including their significant deductions for mortgage interest, real estate taxes, property insurance, and depreciation... which lowered their Federal and state tax liabilities. Once I suggested they could legally lower their Federal and State tax withholding amounts the day they closed escrow, the problem of "having to wait for their tax refund" disappeared.

Here's the 2018 W-4: https://www.irs.gov/pub/irs-pdf/fw4.pdf Instructions & withholding exemption calculation are on pages 2 through 4 (the ones 99% of people never look at).

 

[SageBrush]

Here's the 2018 W-4: https://www.irs.gov/pub/irs-pdf/fw4.pdf Instructions & withholding exemption calculation are on pages 2 through 4 (the ones 99% of people never look at).

Yep.

This is what I do, although the details are slightly different with a small business.
Since there will be ~ 7 months left of taxes in 2017 when he pays for the car he will still end up with a hefty return next spring from the taxes he has already paid. The important detail is to change the W-4 back when the extra deduction is no longer in play.