When looking to finance a new car, you’ve got a few different options. These can include — and are not limited to — paying in cash, taking out a personal loan, a car loan or a lease agreement. There’s also the option to use a credit card, although there are a few ways this should be done to minimize interest.
With low interest rate promotions on the market, a credit card may be the ideal option for paying off your new car. Credit cards carry risks however, so it’s important that you take the time to figure out if a credit card is really the most suitable option for financing your new car.
The main ways to pay for a car purchase is to use:
Choosing a low interest rate card means you can pay off the balance gradually without facing the hefty charges associated with a regular credit card or a personal loan.
You can also choose to transfer the balance over to a loan or transfer it to a new a card with a low or 0% balance transfer offer. You could theoretically continue to balance transfer the remaining balance to a new card each time the promotional balance transfer period ends, but there are a few drawbacks to this method. When you transfer a balance over to a new card, you’ll only be able to transfer a certain percentage of your total approved limit. This is usually around 70% of your approved credit limit – plus you might eventually run out of providers who are willing to give you a balance transfer card.
Every time you apply for a new credit card, your potential card provider will check your credit file. These checks, also known as “hard pulls” or “credit inquiries”, are also recorded on your credit file. Too many credit inquiries at any one time may be a red flag to lenders – not to mention your credit score can decrease, since a single credit inquiry knocks around 5 points off your score.
There are many other ways of financing your car purchase and they should all be considered carefully so you can walk off of the car lot feeling like you got the best deal possible.
Even if you decide that using a credit card to pay for your car is the best option, credit cards do not offer much protection in the event that you miss a payment or pay late. In fact, credit cards will often heavily punish you for a missed or late payment. A credit card may save you money on your car purchase and provide you with more rewards points or cash back, but if not managed correctly, credit cards can also get you into trouble.
If you’d like to learn more about credit cards, head to our comprehensive guide here.
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