Buying a car with a credit card
You can get an auto with plastic, but watch those pitfalls
By Jeremy M. Simon | Published: June 20, 2007
In the market for a new or used car? As unlikely as it sounds, using a low interest credit card to fund some or all of that car purchase could potentially be a less expensive alternative to the auto financing offered by the dealer. Watch out, though. While there may be advantages, the potential pitfalls to this option are deep.
Aside from potential savings, there could be added benefits to buying a car with your credit card. To start with, since a credit card loan is unsecured, your car would not be in danger of repossession down the road if you hit a rough patch financially and had trouble paying back the debt (although your credit would still be damaged).
With financing from the bank, monthly payments are fixed for the loan term. But using a credit card to buy a car means you have the option of simply paying the minimum monthly payment, if need be, whereas not paying the bank loan in full could result in a hit to your credit history.
Furthermore, paying for a car with your low interest credit card means no waiting for loan approval. You can skip discussing loan rates and loan approvals with the car salesman, since your credit line can be used like cash whenever you decide it is time to make an auto purchase. Although, it's a good idea to provide notice to your card issuer that you plan to make such a large transaction.
Using a credit line, preferably a check, to make the car purchase gives you more bargaining power, since to the dealer's eyes, you are buying the car with your own money. As a result, the cardholder doesn't have to be concerned with the secondary transaction of securing the loan. Many car dealers may balk at having to pay the interchange cost of accepting a credit card for payment, so inquire beforehand if this is an issue. And, make sure you have an adequate credit line available to cover the amount of the transaction (some or all) you wish to finance.
Still, you need to cautious when buying a car with plastic. Among the dangers, your low interest rate is probably for a limited time and could jump once this introductory period ends. Be aware also whether the low interest rate applies to new purchases or cash advances as opposed to simply balance transfers from other credit cards.
Although using a balance transfer credit card before the intro period on your initial credit card is an option, you still need to be aware of these pitfalls.
Separately, being late with a single payment on your credit card or even on your electric or cable bill (due to universal default) could result in a much higher default APR.
Still, if you remain careful, buying a car with your low interest credit card could be a feasible and potentially less expensive alternative to traditional auto financing options, especially if you have the ability to aggressively pay down the balance within a year or two.
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