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When buying a car, you’ve got a few different options. They include — but aren’t limited to — a personal loan, car loan or lease agreement.
You may also be able to use a credit card, which can be a good option especially if yours has a low-interest promotion. However, buying a car with a credit card carries risks, and you’ll want to take care to minimize interest.
This depends on your dealer. If you’re thinking about buying a car with a credit card, ask your dealer if it accepts plastic. Also, ask which card networks it accepts — for example, Visa, Mastercard, etc.
For many, the answer is: Yes, if you can pay it off quickly, and if you earn rewards.
Credit card interest is the main factor that affects whether it’s a good idea to buy a vehicle with your card. Consider these statistics:
Because credit card APRs tend to be much higher than those of auto loans, plastic tends to be a poorer option. Still, consider these pros and cons to decide whether using a card is right for you.
Yes, it’s possible to pay your car loan with a credit card. You’ll need to make a balance transfer, so a card with a long 0% intro APR period on balance transfers would be the best choice.
Note: Card issuers will automatically decline balance transfers within the bank or with affiliated institutions. This means if your car loan is from Capital One, you will not be able to make a balance transfer to a Capital One credit card.
If you’ve decided using a credit card is a smart choice, here’s how to get your next car with it.
Your best defense is agreeing on the price of the car with your dealer before discussing payment options. This way, you’ll know if your dealer wants to add a surcharge.
Per merchant agreements for many credit card companies, businesses must accept credit cards for all transactions if they do so at all. Your dealer may accept cards for merchandise or servicing, which means it likely must do so for car purchases as well.
If using a credit card is really important to you, you can always choose not to buy the car. Coincidentally, walking away from a deal is among your best negotiating tactics with a car dealer.
If you’re looking to make a direct car purchase with your card, look for a long 0% intro APR period on purchases. But if you’re looking to pay a car loan with a credit card, look for a long 0% intro APR period on balance transfers.
There are other ways of financing your car purchase. Consider them in addition to credit cards, so you can walk off of the car lot feeling like you got the best deal.
When you get a car loan, the car you are planning to buy is used as security for the loan. If you can’t meet your loan obligations, the lender has the right to seize your car. The interest rates are usually lower on this kind of loan since it has been secured to an asset.
When you take out a personal loan to purchase a car, you must make regular payments like you would with any other loan. You can spread these repayments out anywhere between one to seven years. You can either get a secured or unsecured personal loan for car financing, and this will influence both the interest rate and how much you are allowed to borrow.
Getting a lease is a lot like renting. You can put a down payment on a car, after which you’ll make monthly payments for as long as the lease lasts.
You’ll have the option to buy the vehicle, for a residual, when the lease has expired. The residual is the wholesale value of a car at the end of the lease, and it’s set by whoever finances the lease.
Even if a credit card turns out to be the most suitable option for you, cards don’t 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, but if not managed correctly, it can also get you into trouble.
Ultimately, you should only use a credit card for a car purchase if you can pay off your balance quickly — and if you’ll earn rewards.
A car loan is a strong alternative, often coming with much better interest rates.
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