While a vast majority of car purchases are financed through auto loans, dealers do allow for an option to pay via credit cards, as a more convenient mode of payment. With banks and card issuers no longer shying away from such big-ticket purchases, it is now very much possible to buy a car using a credit card, but the real question is, should you be doing this, and what are the implications of the same? Dealers have long allowed customers to finance their down payments using a credit card, but that too within a certain limit. Given the substantial transaction costs that come with credit cards, often extending up to 3%, they can eat into a dealership`s already thin margins.
Leaving all that aside, however, here are a few things buyers should know before swiping their credit cards to finance their next car.
- Understand Dealer Rules & Requirements
As discussed above, dealers have varying approaches when it comes to credit cards, and while they love the ability to offer extra convenience to customers, the merchant and transaction fees start to pile-on, eventually making it no longer worth it to offer the same.
If you`re thinking about using a credit card to purchase a car, it is best to discuss this with the dealer first, and understand their terms.
Most auto dealers would prefer that customers take a loan to finance their purchases, since they stand to receive a handy cut of the same. However, if you`re hellbent on payment via a credit card, they may be willing to relent, lest they end up losing the sale altogether.
- Credit Card Rates, Rewards & Cashbacks
Auto loan rates are often quite high, but they are orders of magnitude cheaper when compared to credit card APRs, which can range from 12% to 30%. There are, however, ways in which using a credit card may actually prove to be financially beneficial, especially when considering the rewards, bonuses, and points.
There are in fact, a number of low-interest credit cards that offer 0% APRs for the first few billing cycles, ranging all the way up to 18 months. Such an option makes sense if you have sufficient savings to pay-off the outstanding balance before the introductory period comes to an end.
Similarly, there are cards that offer big rewards and cashbacks, irrespective of the size or type of purchase. For example, with SoFi credit card, consumers can receive a flat 3% in cashback, up to $250 for the first year, which can easily be used towards a cash purchase, resulting in a nice discount.
- Credit Limits & Scores
While your credit card might have a large limit, using it outright to purchase cars and other big-ticket items might not do you any favors when it comes to your credit scores, and overall financial wellbeing.
At times, such acquisitions might be tagged as cash advances, resulting in higher interest rates, and additional fees and charges. If not, it will definitely be flagged as reckless financial behavior, affecting your chances of getting loans at lower interest rates going forward.
- Branded Auto Credit Cards
Most automakers offer branded credit cards, aiming to build loyalty with consumers as they use it to accumulate points at dealerships and service centers. Further points can be accumulated whenever the card is used at gas stations, for insurance, or any other vehicle related expense.
These points, along with a host of other rewards and incentives can come in handy when you`re planning to upgrade or buy a new car with the same brand, a few years down the road. The benefits may not be much, but it can certainly dent the cost of buying a new car, making it worthwhile in the long run.
Final Words
There is no shortage of financing options for new cars, and while credit cards still remain scarcely utilized for such large acquisitions, they are growing, especially with the changing nature of credit card companies, along with the payment processing networks.
