Use A Credit Card To Pay For A Car

Once upon a time, there was a little credit card that bought a big car…

To begin, We are not referring to usig your credit card for the down payment, then financing the balance with a typical car loan. We are talking about buying the whole car, lock, stock and barrel, with your credit card. Would that be a sound move, or a foolish move? Here are some of the pros and cons:

First, the biggest advantage to buying cars using your credit card is the loan is unsecured. If your family faces unexpected expenses, the bank has no claim on your vehicle. Should you default on your payments, the car remains yours, not the banks. You own the car. Period.

So unsecured is better, to buy your car, right?

Sometimes. We must keep in mind the higher credit card interest rate. The interest rate on your credit card is inevitably higher than standard secured loans , such as those most people use to pay for a new car. You see, the banks don’t have a claim to your purchases if you renege on the payments. The banks have to ensure they make a profit. That being said, you would be ill-advised to miss a payment.

Second, there is no need to get down on all fours and wriggle through the tangle of hoops that a car loan application typically demands.car loan applications force upon you. If you’ve had enough of questions like “What’s your favourite shade of green?” , you’ll know what I mean. Not having to fill in useless forms, answering pointless questions, is perhaps the best news for people without a steady income. Credit cards help you avoid the effort and the worry.

While less paperwork and not having to apply for a typical loan is appealing, there is a cost to this convenience. You you will still have plenty left to pay off come the month’s end – which is when the shocking rate of interest kicks in.

Could a high interest rate be the deal-breaker? Not necessarily. Here’s what you can do. Buy the car using whatever credit card you have now. After the first month passes by, transfer the balance to a new 0 APR credit card (no interest). Your credit card payments will go directly to the cost of the car for the first 6, 12, 18 or however many months until the balance-transfer period runs out. So choose a card with a long grace period…then pay, pay, pay like the wind.

Third – and this might just be the best reason to use your credit card to buy a car – the credit card gives you flexibility over how fast or how slow you pay. You can pay as much or as little as you want in any given month, as long as you make the nominal minimum payment. That is usually a paltry one percent ,but that varies from company to company. On a $25,000 car, the minimum payment would be $250 per month.

Some months you may want to stick with the minimum required, a much lower burden that having to meet the typical car loan payment schedule. This might come in handy if you need to pay high winter heating bills a member of the family gets sick. There will also likely be months when you find yourself with a little extra pocket change and you can pay larger amounts to reduce the balance faster. With a credit card, it is completely up to you; that’s the advantage.

Some car loans are more flexible than others, even allowing early repayment, but not likely as flexible as a credit card.

Fourth, your credit card might have a rewards program; putting the price of the car on it could put a whole lot of cash back into your pocket.

The one thing about rewards cards, at least most of them, is that they usually have higher interest rates and might even have annual fees or other fees that make them pricier than the rewards they offer. Do your homework before signing up for any credit card.

Again, you must weigh the pros and cons before choosing any particular credit card over a traditional car loan. The biggest is the effective interest rate. Some credit cards do offer extremely low rates, while still being unsecured. There are some credit cards that even offer 0% for the first 12 months on balance transfers.

However you decide to finance your new car purchase, be sure to keep in one important code-of-conduct when speaking of debt: never bite off more than you can chew. Never take on a higher debt than you can painlessly pay back. Carefully determine what you can afford before signing for any car purchase.

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