Why Some Buy a Car With a Credit Card

Aug 26 2011

Why Some Buy a Car With a Credit Card

Posted by Aaron Cruz in Financial Advisor

When most people buy a car, they take out a loan to pay for it. However, some people pay for all or part of their new car with their credit card. There are quite a few reasons why this can be advantageous if you’re looking for a reasonably priced car. However, there are also reasons why you should avoid doing this.

One reason that you may want to consider funding all or part of your new car purchase with a credit card is if you have a low-interest rate credit card. This is especially useful if you have a card with an introductory rate of 0%.

There are many cards that will provide you with this introductory rate for the first 90 days or so. If you put your down payment on the card, you wouldn’t have to pay any interest on the money within this time frame. Just make sure that you pay as much of it off as possible though.

One of the main benefits of buying a car with a credit card is that your loan will be unsecured. If you obtained a traditional car loan, you will have your vehicle repossessed if you fail to make payments on it. This isn’t the case when you buy it with your credit card. Your credit rating will certainly go down though.

When you get a traditional loan, you will have a set monthly payment. You’ll have to pay this amount each month even if you don’t have it. With a credit card, you have flexible monthly payments. If you’re running low on money for a particular month, you can simply pay the minimum required payment for the card.

Many people have trouble getting a loan whenever they go to buy a new car. It can often take hours or a few days in order to find a lender that’s willing to provide you with the money. You wouldn’t be subjected to this waiting time if you bought the car with a credit card instead.

One of the main reasons that people look to buy a car with a credit card is because they can get it for a better price. To the dealer, it’s basically like you’re paying cash for the car. They’re usually willing to negotiate better in these cases.

As mentioned earlier though, there are quite a few drawbacks of buying a car with a credit card. You may have a lower interest rate in the beginning, but it’s usually only for a very limited time.

Your interest rate may soar through the roof after the introductory period expires to 15% or more. You would often be able to get lower interest rates through a traditional lender. This is especially the case if you happen to be a member of a credit union.

If you buy your car using a credit card with a low introductory APR, then you will have to make all of your payments on time every month, and pay off the car soon after the intro period. Most companies will terminate the introductory offer as soon as you make a late payment.

Some dealers won’t like the fact that you’re using the credit card to pay for the new car either. The dealer will have to pay a fee based on the amount of each credit card transaction. If you make such a large transaction, it would considerably cut into the dealer’s profit on the sale of the car.

As mentioned, these low interest rates are usually for a limited time only. This means that it’s in your best interests to pay off the balance within this time frame. If you don’t, then you’ll end up paying much more for your car than you would otherwise.

It’s also important to note that by using a credit card to pay for the car, you won’t actually have any cash invested into it. You already know that the value of the car will drop as soon as you drive it away. This will leave you owing more money on the car than it’s worth.

This is especially important if you happen to get in an accident. Insurance companies only pay the car’s actual value Do you have a unique story to tell about credit cards or something related to small business/personal finance? If so, contact us to submit your own guest post ideas and you could be featured on our blog!

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