Can You Buy Car with Credit Card?
You can actually buy car with credit card if you choose. If it is not possible, you will not see advertisements on the internet asking you to buy your car online. Besides the cars that are being advertised to buy online, some car dealers also allow customers to pay with credit card. This means that if you want to buy car, you have the option of paying in cash or by credit card. Paying in cash may not necessarily mean that you have to carry a load of cash to the dealer. You can pay by check or by simply making a transfer to the dealer’s account. Immediately the payment is confirmed, you can drive your car home. But since buying car with credit card is optional, let’s look at its advantages and disadvantages.
Pro and Cons of Buying Car with Credit Card
Let’s first consider the advantages before we look at the disadvantages of buying car with credit card.
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Pro of Buying Car with Credit Card
- Interest Free Credit: When you buy car with credit card, technically you are buying the card on credit. Even though the dealer will get paid immediately, no money is leaving your account at the moment. Your credit card issuer is the one paying on your behalf while you are expected to pay back the card provider later. Even though you have cash to pay for the car, you still have the money available to use for other purposes. Interestingly, you may not need to pay interest on the credit if you are able to pay off the amount at the end of your billing cycle. You can even be more creative about it by getting 0% apr credit card. If you buy the car with 0% apr credit card, you will not need to pay interest on the card balance throughout the 0 apr intro period. You will be expected to pay off the full amount within the 0 apr intro period. Otherwise you will need to pay hefty interest rate on any unpaid balance on the card.
- Immediate possession: Buying car with credit card qualifies you for immediate possession of the car. You just swerve your card and the money is deducted from your card if your credit limit or the amount you left on the card can adequately pay for it. You just go away with the car as if you made cash purchases. On the contrary, if the car is financed, the right of ownership has not actually passed to you until you have made the final payment to the lender that financed the car.
- Protection: When you buy a car with credit card, you enjoy some level of protection in addition to the warranty the manufacturer might have given you. Generally, credit card companies offer protection on purchases in case anything go wrong with what you bought with the card and you need to return the item or you want to claim a refund.
- Rewards: There are different reward credit cards out there. For example, cash back reward credit cards allow you to earn a certain percentage usually around 1% on your spending. Some cash back credit card will stipulate that customers have to spend a particular minimum amount before they can be entitled for the reward. Since the purchase of car is a major purchase, you will be able to meet the minimum spending that will qualify you for such reward. Let’s assume that you buy a car for $15,000 and you enjoy 1% cash back on the purchase; that will put $150 back into your pocket. Meanwhile, if you pay with cash, you will not enjoy such reward. The cash reward may seem small but you can use it for something else.
- Flexible payment: Credit card companies don’t compel you to make full payment of your card balance at the end of the month. You can choose to make minimum payment. As long as you pay the minimum payment on time, you will not be penalized for not making a full payment. However, you will need to pay interest on the unpaid balance. The interest amount that you will pay depends on the interest rate on the card and the amount of the unpaid balance.
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Cons of buying car with credit card
The following are the disadvantages of buying car with credit card:
- Card Acceptability: Not all dealers accept credit cards. This is because of the card processing fee they will be charged before the money can enter their account. The processing fee has the capability of eroding their meagre margin which they enjoy on the cars they sell. For this reason, some of the dealers that accept credit card may want to pass the card processing fee to the customer. Therefore, before you decide to buy car with your credit card, it is better to ask the dealer if you will be imposed any card processing fee.
- High credit card limit: Not everyone will be able to buy a car with credit card even though they like to. The reason is that the value of the car they want to buy may be above their credit limit. Except they split the payment mode between credit card and cash, they will not be able to use their credit card to buy the car.
- Higher interest rate after 0% apr: After buying the car with your credit card, you need to be disciplined enough and ensure that you pay your card balance in full before the expiration of the 0 apr intro period. If you fail to pay the full card balance, the interest rate that will apply will be very high when compared to regular credit cards.
- High credit utilization ratio: Buying a car with your credit card may force you to use up almost all your credit limit. This will increase your credit utilization ratio. Credit utilization is one of the factors that credit rating agencies consider when calculating your credit score. If your credit utilization ratio is too high, it will lower your credit score. If you really want to build your credit score, it is better to keep your credit utilization below 30%. For example, if your credit limit is $10,000; that does not mean that you should use all the credit. Instead, you should keep your spending below $3,000. However, if it happens that you overshoot this amount, you should endeavor to pay part of it before the end of the month. Your credit card provider will only report your card balance at the end of the month to the credit bureaus.