Due to their ease of use and reward-earning capabilities, credit cards are an increasingly popular method of payment for anything from food items and streaming providers in addition to traveling. However, can you use your credit card to purchase a car or to pay off the auto loan you have?
The simple answer is it is possible to buy a car using a credit card. However, whether you should or not is an entirely different matter. From transaction charges as well as high rates of interest to concerns about credit limits, There is a myriad of risks to think about before attempting to use a credit or debit card to buy the purchase of a vehicle.
This article will examine the possibilities of getting auto payments using a credit card as well as the probability of dealers and lenders accepting this method of payment and the advantages and disadvantages of this method. We’ll also look at alternative strategies for financing that might be more sensible.
Can You Buy A Car With A Credit Card.
There is a slim chance for your bank to let you to pay for a car by credit card. One reason is that lenders aren’t keen on paying the transaction charges of 1.5 percent to 3.5 percent that are associated with credit cards. In addition, they know that by accepting credit card transactions, their customers would trade one type of credit to another.
The second reason is that auto loans come with lower rates of interest on average than credit cards. Since auto loans are installment loans and are fixed-interest loans, the total amount payable over the course that the loan lasts is set. However, with credit cards, interest rates can increase quickly and grow exponentially when cardholders carry the balance. Thus, by allowing credit cards payment, lenders are increasing the risk of borrowing borrowers becoming overwhelmed with credit card debt and eventually being in default on their loans.
A majority of the major auto finance departments of manufacturers prohibit the use of credit cards. There is one exception: GM Financial, which states that it permits borrowers to make payments using credit cards through Western Union. Make sure you know of the fact that Western Union charges a fee for its services, and additional charges may be charged by your card issuer, like the cash advance charge.
Can I use a third-party service to make a credit card car payment?
If you aren’t able to pay for a car loan using a credit card directly, however, you might be able to pay with a service such as Plastic. Plastic accepts credit card payments for a wide range of charges that aren’t typically accepted by credit card payments (such as auto loans, mortgages, rent, and utility bills) and then transfers the funds to the person who is paying by way of checks or ACH payments.
Plastic promotes its services as a method to help people earn rewards from credit cards for their daily expenses. It’s worth noting the fact that they charge a transaction cost of 2.9 percent on the use of credit cards. This is a higher rate than the majority of reward cards charge for other categories.
Most of the time, it is unlikely that you will come out in the lead if you use Plastic to make a payment with your credit card and earn rewards. A possible exception is when you use Plastic for a short amount of time in order to meet the minimum amount of spending to qualify for a cash-back welcome offer on a credit card.
Can I pay off my car loan with a credit card?
It’s unlikely the lender you have chosen to work with will permit you to repay your loan using a credit card, either. The transaction fee will still apply, and allowing a the payment in full with a credit card will eat away at the profits of the lender.
However, you might have a better chance of persuading your bank to take the use of a credit card when paying off the loan, as any future delinquency on your loan won’t be an issue. If you’re interested in this, contact your lender and inquire if its policies on payment are more flexible in loan repayments.
If the lender permits you to pay back your loan using a credit card, they could decide to cover the transaction cost by charging the convenience fee. This fee can differ and can range from 2 to 4 percent.
You can utilize a program like Plastic to settle your auto loan with an amount of 2.9 percent, if the direct payment option isn’t available.
Do Car Dealers Take Credit Cards?
Based on the cost of the vehicle you’re planning to purchase, it’s unlikely that the dealer will permit you to make the full amount using a credit card. However, certain dealers may permit the use of credit cards to make a down payment in the amount of a certain amount.
Some used car dealers on the internet, like Vroom and Cars24, accept credit card payments, whereas others, such as Carvana and CarMax, don’t. Tesla will only allow credit cards to be used for the initial fee for orders. Acceptance of credit cards in local dealerships will be determined by the dealer.
Certain car manufacturers have their own co-branded credit cards, which include GM, BMW, and Lexus. The rewards earned by these cards are usually used towards leasing or purchasing a car. However, there’s no guarantee your dealer in your area can accept the card as a method of payment for the balance remaining.
Pros Of Buying A Car With A Credit Card
0% APR credit card offers may be accessible
Many of the most popular credit cards with 0% APR currently offer promotional terms between 15 and 21 months. If you’re approved for one such card, you can provide a whole year of interest-free credit.
A credit card that has 0% APR is a great option if you believe you’ll be able to settle the balance completely before the end of the promotional period. This way, you’ll be able to spread your purchase over a period of time without incurring any interest.
As an example, suppose you’re planning to make the sum of $5,000 down for the purchase of a car. Before you begin shopping then, the first step is to are able to apply and get the Wells Fargo Active Cash(r) Card that offers a zero APR intro for 15 months after the date of account opening for purchases and transfer of balances that qualify, after which the 19.99 percent, 24.99%, or 29.99 APR that is variable at a % is available. Balance transfers that are made within 120 days are eligible for the intro rate, a charge of 3%, and an additional fee of up to 5 percent for a minimum of $5 being charged. There’s also a merchant who will accept credit card transactions with a limit of up to $5,000.
If you’ve got your ducks in a row, you can make use of the card to pay your down payment of $5,000. After that, you’ll have to divide five thousand dollars by fifteen to determine that you’ll need to make the payment of around $333.33 every month for the next 15 years to make sure that your balance is paid off before the expiration of the period of interest-free.
To make things easier, You have set up the autopay regular payment for $334 a month. If you could keep to this schedule, your balance would be paid off within 15 months, and you’d not have to worry about having to pay a cent in interest.
You could earn significant rewards
If you are able to time it right, the purchase of your car could have the potential to help you receive a welcome reward in addition to regular rewards for purchases. In the end, it could be worthwhile if you are aware that you have enough money stored in your bank account that can be used to pay the balance in full.
For instance, you can use the Chase Sapphire Preferred(r) Card, which earns 5 points per dollar for purchases made with Chase Ultimate Rewards(r), 3 points per dollar for meals, select streaming services, as well as online purchases of groceries (excluding Walmart, Target and wholesale clubs) two points for every dollar for all other travel purchases, and 1-point per $1 for all other purchases. It also comes with an initial offer of 60,000 bonus points upon spending $4,000 on purchases within the first 3 months after the time of account opening. It also has an annual fee of $95. If you take out this card card and using it to pay for $5,000 for a car purchase, you’d receive 5 000 Chase Ultimate Rewards(r) points in addition to your welcome offer.
These points could amount to more than $800 when they are used to pay for travel via The Chase Ultimate Rewards portal. Even after taking into account an additional 3% convenience charge and the annual fee of $95, however, you’ll still be better than.
This is a choice worth a look at, particularly in the case of a particular card you’ve been considering purchasing. It’s only sensible only if you’re confident that you’ll be able to pay off the entire balance. With the high APRs of credit cards, interest costs could quickly wipe out any rewards you earn if you have an outstanding balance.
Cons Of Buying A Car With A Credit Card
You may encounter credit limit problems
Limits on credit define the maximum amount you can spend with a credit card. The credit limit might not be a concern when you’re shopping for everyday items. However, you should ensure that you check at it prior to attempting to purchase a big item, such as the purchase of a car.
If the card’s limit is less than the purchase value, it will be necessary to pay an alternative method of payment to make up the difference. In certain situations, you might be able to make use of several credit cards to pay the entire price. But, this may raise the percentage of utilization to a very high degree.
Credit utilization is the percentage of your credit your using divided by the amount of credit accessible to you. Credit scoring companies such as FICO(r), as well as Vantage Score(r), take into account the credit utilization rate in making your credit score. The lower the rate, the more favorable for scoring purposes. It is recommended that the Consumer Financial Protection Bureau (CFPB) advises consumers to limit their credit utilization to 30 percent.
If purchasing a vehicle using a credit card, it could increase your credit utilization by over 30%, and it can have a negative effect on your credit rating. Be aware that the lower your credit limits, the greater impact each dollar charged has impact on the credit utilization rate.
Standard interest rates on credit cards are high
It’s true that credit cards with 0% APR offers can be very beneficial; however, what happens if you aren’t eligible to receive one? What if you’re not able to pay off the account before the initial period is over?
In any of these scenarios in either of these scenarios, your credit card’s standard APR would be in effect, and that’s negative since credit cards are among the most high-interest types of debt. Based on the Federal Reserve, the average interest rate for credit cards today is just a little over 19 percent. Contrary to installment loans, the interest on credit cards typically increases every day.
Because of this, interest on credit cards could increase quickly. In the event that you pay $150 per month for a credit card that has a balance of $5,000 and with a 17.5 percent per-month interest charge, it will be 47 months before you can pay the balance. In this period, you’ll have to have to pay more than $2,000 in interest costs.
Alternatives To Using A Credit Card To Buy A Car
A credit card used to purchase a vehicle could be financially advantageous when you’re sure you’ll get rid of interest charges:
- Benefiting from a 0 APR promotional offer, OR
- In paying the balance in full by the due date for billing
If none of the above scenarios could be the case, We suggest looking into other financing options instead.
Shop around for an auto loan
If you’re eligible for a car loan, you’ll be able to obtain a lower rate of interest (with zero compounding) if you can, try to get loan preapproval from a credit union before visiting the dealership.
After you’ve arrived, you may find that the finance department at the dealership could be able to provide you with a lower price. Regardless, arriving with an approved preapproval places you in a favorable place for negotiations. If you’re not able to be eligible for an auto loan by yourself, then you might be able to apply using a credit-worthy co-signer.
We suggest applying to several lenders in order to get quotes from different lenders. You can get ahead in the shopping process by going through the most affordable auto loan rates right now.
Save up to pay with cash
If you are focused on spending as well as spending, it could take shorter than you expect to save enough to cover a cash-down loan or to purchase a used vehicle that is less expensive for a full price. We know that this method isn’t suitable for people who require immediate transportation. However, if purchasing a car could be more of a wish than a requirement at the moment, taking the time to pay in cash can help you save a significant amount of money in interest fees.
Trade in another vehicle
If you’re eligible for an auto loan, it’s still difficult to raise the money needed for that down payment. Before you pull out your credit card, inquire with the dealer about trade-in alternatives. In some instances, the value that you receive from your trade-in might be enough to pay for the cost of financing the car you’re buying.
Although there are some advantages when using a credit card to purchase cars, there are certain risks. Buyers who are able to pay off the balance on their credit card quickly might decide that the benefits outweigh the risk. For many choosing a different type of financing for cars is the best option.