It sounds absurd, I know. Yet it can be done. Financing such a large purchase on a piece of plastic can be scary. But in fact, using a credit card to finance a car could be one of the better financing options if you don’t have enough cash on hand.
Many consumers use bank and auto loans when searching for a new car, but that might not be best for the consumers’ wallet. Bank loans are usually on fixed payment plans and set interest rates. If you find an auto dealer that accepts credit cards, it could be a good option for you.
Unless you are using a pre-paid or secure credit card, your credit card should be of the unsecured variety. Most traditional credit cards are unsecured. If you use one of these cards to pay for your car, then you would own the car outright. That means down the line if you run into some money issues, the bank cannot come to repossess your car because it is your property.
With a credit card, you could also have smaller monthly payments than with a traditional bank auto loan. When consumers get bank loans they usually want to pay it off within four years—this means higher monthly payments. If you can’t make a full payment or are making a late payment on your auto loan, it could end up severely hurting your credit score. But if you use a credit card, you can still pay off your car in four years, but if one month you can’t make the full payment you can always make the minimum payment on your credit card.
For example, a consumer is looking to buy a car for $10,000, and they are looking to finance $9,500 of it. Loan interest rates for used cars range anywhere from 6.95 percent to 16.63 percent, let’s say that this particular consumer finds a good deal, and gets an interest rate at ten percent. Now let’s say this same consumer happens to be credit card shopping and finds a credit card with no annual fee and zero APR for the first twelve months, and with enough available credit to finance the car.
Let’s do the math together.
A traditional auto bank loan at ten percent APR for $9,500 will cost the consumer $306.54 a month. After six months, the consumer will still owe $8,107.02 if he uses the loan as a finance option. If he chooses the credit card, and continues to make the $306.54 monthly payments, the consumer would owe $7,877.02— which would be a saving of $230 for the six months, if the credit card was used.
To some $230 in six months doesn’t seem noteworthy. But that’s only the beginning, there is money to be saved, but you must know the ropes. If you decide to go down the credit card financing route, make sure to check out the credit card you’re using and see when the special introductory offers expire. Once the offers expire, interest rates usually jump up.
If you are disciplined, and know your way around the credit card industry, then using a credit card to finance your automobile could be a good option for you.
