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A car probably isn’t at the top of your list of things to purchase with a credit card. But it could be tempting to pay with plastic as a way to rack up more points on a rewards card, or convenient if you don’t want to apply for yet another loan.
Whatever your reasons for considering a credit card for car finance, there are several important factors and limitations to consider. This guide will outline what you need to know about using your credit card to buy a car, and offer some other options so you can find a payment method that suits your circumstances and needs.
There are several reasons why you might wish to buy a car with your credit card. These circumstances include:
While there can be benefits to paying for a car with your credit card, here’s what you need to weigh up before pulling out the plastic:
Apart from using your credit card, you may also want to consider the following options:
Product | Interest rate | Term | Monthly repayments | Surcharge/ Loan application fee | Total cost |
---|---|---|---|---|---|
Car loan | 10% p.a. | 2 years | $277 | $195 | $6,840 |
Credit card | 13% p.a. | N/A but planned for repayments over 2 years | $282 | $180 (3%) | $6,953 |
Based on a two-year repayment period, paying for his new car with a credit card costs only $113 more than the car loan option. Jonathan decides to use his credit card because his credit limit is $10,000 and this purchase will not drastically affect his cash flow. Also, since he has a frequent flyer credit card that offers 1 point per $1 spent, he will earn 6,000 points for this purchase that could help offset the cost of financing.
Paying for a car with your credit card may or may not be the wise thing to do – it really depends on your circumstances. When weighing up your options, remember that interest fees can snowball over time and you should try as much as possible to avoid getting caught in the debt trap. It may sometimes be better to defer gratification than to end up paying way too much for a car because of interest fees and surcharges.
Images: Shutterstock
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