Banks sweeten credit card deals

[d.o.g.]

It is about the unsecured short term loan that bank frequently offer to their customers. Recently, HXXX bank offered a 1.99% p.a. loan for six months, with no upfront admin fees. After six months, the interest will revert back to 24% p.a. What is your view if one take up such a loan and invest in shares for 6 months?

I actually played this game for a while some years back - borrow from Bank A, then after 6 months borrow from Bank B to pay A, then Bank C to pay Bank B etc. On paper it was always cheap - borrowing at 2-3% p.a. so I could make a good return, on paper. Sometimes it was a credit line, other times it was a credit card balance transfer.

I soon found that although I did make some extra money this way, it wasn't worth it, for the following reasons:

1. I had to keep track of when the cheap interest period would expire and make sure the credit lines overlapped;

2. I always had to overpay slightly to pay off the old debt, creating a credit balance that was a hassle to retrieve;

3. The maximum loan was 2x my salary, which was small compared to the total amount I was investing.

I did this because I didn't want a margin call and knew that the amount I was borrowing was small enough that I could pay it off with my salary within 6 months. But because the loan amount was small it didn't produce enough extra money. So in the end I gave up.

If you are doing this for only 6 months I would consider it too risky. The interest cost is guaranteed but the investment profits are not. Even if you are a good investor you might have some bad luck for 6 months. If you juggle the bank credit lines for 2 years it might work out, but you'll have the same issues I did. Learn from my experience and don't waste your time.

If you are even remotely serious about investing you will quickly find that the amount you invest will soon be many times your salary, so any money you can borrow via a personal line of credit or credit card balance transfer is not meaningful at all.