Borrow From Margin, Buy Equipment, Lease Equipment: Anyone try this?

[BargainValueHunter]

http://www.bloomberg.com/news/2011-10-11/banks-woo-top-customers-with-cheap-cash-from-credit-card-transfer-checks.html

 

One client pays about 50 basis points for margin loans to purchase “recreational equipment” that he then leases, said Jeffrey Thomasson, chief executive officer of Oxford Financial Group Ltd., an investment adviser and family office based in Carmel, Indiana, which oversees more than $16 billion. He declined to say what the client buys for confidentiality reasons. A basis point is 0.01 percentage point.

[Green King]

Rate Jump

 

The Bank of America offer jumps to 22.99 percent at the end of the teaser-rate period in June, and the Citigroup promotion switches to 14.99 percent on unpaid balances in February 2013.

 

Banks have been sending more balance-transfer mailings to prospects in addition to existing customers, said Woolsey of CreditCards.com. In the six months through August, about 71 percent of credit-card offers to potential new customers came with teaser rates on transfers, compared with 66 percent of mailings in the same period last year, according to Mintel Comperemedia, which tracks marketing trends.

 

Consumers have been increasing their reliance on credit cards to pay for staples such as groceries, said Silvio Tavares, senior vice president of global information and analytics at First Data Corp., a payments processor that tracks trends among payment types. Consumers spent 6.8 percent more on their credit cards at food and beverage stores in August compared with a year earlier, he said.

 

This is not going end well. Are the Banks taking on these risks or are they selling it off to others?

[JSArbitrage]

This has been around forever.  It's just balance transfer offers that you are allowed to deposit directly into your checking account.  Citicards actually allows an EFT directly into your bank account.  If you are patient and have good credit, you can find 0% loans with zero fees so it's a true no-cost loan. 

 

There is actually something called an "App O'Rama" where people gather like 10 loan offers and apply for all of them at once.  If you get 8 of them with a $10K credit line each, you get $80,000 in 1-2 year loans.  They then deposit them in high-yielding internet savings banks and earn the spread. 

 

There are entire internet forums dedicated to making the best use of these zero percent loans.  Most people just use them to pay off their mortgage or student loans though. 

[JSArbitrage]

Just took a look at mine.  BoA is offering me a $15,000 at 4% for 13 months (zero percent loan, 4% transaction fee) or $15,000 at 6% for 18 months (2% loan, 4% transaction fee.)  So it very common.

[beerbaron]

It seems like a good way to kill yourself. Borrow short term at low rate and lend long term for a tiny spread but a huge risk of loss of capital. Unmatched lending/borrowing terms is the oldest trick in the book and is a good way to lose everything.

 

BeerBaron

[Green King]

If this has been done for a long time. Than how would they be able to gain more revenue and growth without lowering the standards ? what will happen when the standards are lowered ?

[BargainValueHunter]

I was wondering about using the advances like an ultra-low interest personal loan to invest in capital goods which one would turn around and lease.

 

Kind of a quick and easy sole proprietorship start-up.

[Myth465]

I am 28 now, but have been looking into this / doing this since 18. Fatwallet Finance talks about this quite a bit. Before the financial crisis there were no minimum fees or capped fees (now its 4%). Rates were also 5% or 6% in Savings accounts. It was a very easy spread to earn.

 

Using this for anything other then risk free arbitrage introduces risks .... With the 3% fee, your hurdle rate is 3% which is tough to beat. You can get 10% in the market or 6% in Australia but you introduce currency risk or market risk....