Using a Credit Card to Finance Deals

Using a Credit Card to Finance Deals

How many ways are there to raise funds for real estate deals? Many.

Have you ever used a cash advance on your credit cards to finance a deal? This is one quick way to get the financing you need. But here are a number of important things to consider. Some of those include:

  • What is the interest rate on the cash advance?
  • How long can you use it?
  • What is the fee to do the transaction?

When you get a low interest credit card offer in the mail, it can be very tempting. I recently received another 0.99% rate for a year with the cost of the transaction at three percent. I took it and will use the money for a year. Where else can I get money at that rate? And I got a good sized chunk.

However, I have learned the hard way some pit falls to watch out for.

  1. First, of course, always make your payments on-time; early is better. If you’re late on any, you may  pay the higher interest rate on the entire amount borrowed for the entire time you’ve had it. All deals may end once you’ve made a late payment.
  2. Second, be sure to ask what the transfer fee is. Some charge a percentage of the amount you borrow, some a flat fee. It can be high so ask. You can always ask for a lower fee. Maybe they can!
  3. Third, how long can you use it? If it’s only 3 or 6 months, it may not be worth it. There may not be time to use it, and get it back, to pay off the loan that quickly.
  4. Fourth, and VERY important, you may only want to do this on a card where you have a ZERO balance and do not plan to use the card for anything else. If you have anything else charged to this card, the interest rate on that will be higher than the teaser rate you are trying to get. When you send in your payment, some companies may use it to pay off the lower rate first and the other charges at the higher rate continue to grow until the lower rate transfer is paid off. It can take you a very long time to start paying off the fees on the higher rate charges and this is how some credit card companies make so much money from these special offers.

Ask enough questions, get all the answers BEFORE you borrow.

ALWAYS READ THE FINE PRINT!

  • Pay on time
  • Pay off early
  • Ask what the fees and charges are
  • Know the true and final interest rate to see if its really worth it to you
  • Know how long you can use the money
  • Better to get cash advances only on cards with zero balance that you will not use for any additional charges.

Done right, credit cards are a great source of financing.

This post has 7 Comments | Would you like to leave a comment?

7 Comments

  1. Right, I’d read that. There’s always room for error so I like to bring that up again when I’m setting up my transactions!

    Thanks for the link.

  2. Fabulous, Rob. And, once you’ve paid it off, they will offer the promotion again.

    Thanks for sharing!

  3. Also, regarding the application of payments, card companies are now required to apply any payment over the minimum payment to the highest interest first. This is taken directly from the Credit CARD Act of 2009:

    ‘(b) APPLICATION OF PAYMENTS.—
    ‘‘(1) IN GENERAL.—Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the
    minimum payment amount first to the card balance bearing
    the highest rate of interest, and then to each successive balance
    bearing the next highest rate of interest, until the payment
    is exhausted.
    ‘‘(2) CLARIFICATION RELATING TO CERTAIN DEFERRED
    INTEREST ARRANGEMENTS.—A creditor shall allocate the entire
    amount paid by the consumer in excess of the minimum payment amount to a balance on which interest is deferred during
    the last 2 billing cycles immediately preceding the expiration
    of the period during which interest is deferred.

    https://en.wikipedia.org/wiki/Credit_CARD_Act_of_2009

  4. Hi Karen,

    I recently did a very similar transaction. My wife and I have great credit and our cards (which we weren’t using) were constantly offering us 0% or 1% interest deal, plus the fee.

    I work for a broker who uses private investors, so I became one myself! I borrowed the funds from the credit cards then loaned the amount for a 9 month mortgage at 15%. The house has been rehabbed and is already under contract and I will end up making about $1400 when all is said and done.

    It doesn’t sound like much, but considering there was no cash out of my pocket, I’d say it worked well. Plus I still have most of the promotional rates for another six months to a year, so I will probably do another deal. And this time I won’t have to pay any transaction fees as I already have the cash (once the first mortgage has been paid off).

  5. Hey –

    Your last post [Using a Credit Card to Finance Deals] was freaking awesome. I have gone ahead and added your stuff to my Feedly account. Please keep me updated if you post anywhere else.

    Keep rocking –

    Jon

  6. Update!

    I just found out another credit card company trick. They often say you can transfer balances “for the life of the loan”. Be sure to find out how long “the life of the loan” actually is. Obviously, they hope you’ll go beyond that so they can collect HUGE amounts of late fees.

    Buyer beware!

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