If you have a credit card, you’re probably pretty comfortable using it on the small stuff, such as the weekly grocery shop and some online retail therapy after the kids are in bed. But what about larger purchases? How would you feel about using your credit card to pay for something big, like a car?
In this post, we’ll cover the ins and outs of buying a car with a credit card, including when it will and won’t work, and the factors you should consider before flexing that plastic.
Should You Use Your Card To Buy A Car?
While you may be hesitant about using your credit card for such a large purchase, there are some instances in which it could make sense to put a car on plastic.
• You’ve tried to apply for a car loan, but your application was rejected.
• The car you want to buy is less than $5,000 and you can’t find a car loan that will cover such a small amount.
• You want to split the cost of the car, covering some with your savings, and some with your credit card.
• You know you will pay the car off quickly, paying less in interest on the purchase than you would on a car loan.
• Your current car has died and you need a new one fast. A cheap car will work in the interim until you can get proper finance sorted.
• You know you can pay off the car before interest starts accruing – and you will earn a heap of rewards points on the purchase.
Factors To Consider
Of course, while there may be good – or at least, acceptable – reasons behind deciding to use a credit card to buy a car, there are some very important factors to take into consideration before you buy.
Your Credit Limit
Your credit limit will determine your spending power, so you will need to take into account your available spending limit – and whether that will allow you to buy the car you want. You may be able to extend your credit limit by making a request to your card provider, but bear in mind this will usually involve a credit check.
Your Ability To Pay It Off (Without Paying Interest)
Whether your credit limit is big or small, you need to make sure the purchase of your car will not sink you in unmanageable debt. Only spend as much as you know you can pay off, while paying the minimum in interest and fees. Remember, credit cards are a high interest product, so if you carry a balance long term, those interest charges will quickly stack up.
Whether The Seller Accepts Card Payments
Before you buy, you will also need to find out whether the seller accepts credit card payments. If you are buying through a private seller, it’s unlikely you will be able to pay using a credit card. Dealers may accept credit card payments, but be sure to check if there will be any fees or surcharges applied.
Making It Work
If, after all that, you believe that using a credit card is doable, here are some tips to make it work.
• Advise Your Provider: Some card providers flag large transactions as potentially fraudulent, putting a hold on the purchase until the cardholder can be contacted. To prevent this from happening to you, advise your bank of the transaction beforehand.
• Buy Within Your Means: As we mentioned before, putting large purchases such as this onto a credit card means putting some serious consideration into affordability. Don’t get carried away, spending up to your available credit limit just because you can. Only buy what you can afford to pay back.
• Consider A Purchase Offer: If your credit is good, you may be able to apply for a credit card with a 0% purchase offer. Using an offer such as this could allow you to purchase the car, and then pay it off within the introductory period, with no interest to pay.
TIP: It’s best if you don’t count on making a purchase and then transferring the balance to a balance transfer card. If you find yourself ineligible for the card, you will be stuck paying off the balance on a high interest card.
• Create A Repayment Plan: To ensure you pay off the purchase as quickly as possible, first work out a budget that allows you to cut back where needed, and then create a repayment plan to clear the debt.
Just Say No
Just as there are many reasons to say yes to paying with card, there are also plenty of reasons to say no.
• Using your credit card to buy a car will decrease your available credit limit, which limits your card’s use as a cash flow tool.
• You will get no interest free days until you pay off your balance.
• You may end up paying over the odds in surcharges, fees and interest.