How to make large purchases using a credit card

When it comes to big-ticket items, here’s how a credit card could work for you.

If you’re looking to furnish your home, take the family on holiday or buy new wheels, you’re probably also thinking about how to finance it – especially if you don’t have cash or savings to put towards your purchase. While options such as in-store financing and personal lines-of-credit may be available, using a major credit card to make your purchase could also be rewarding.

For instance, taking up a 0% purchase credit card offer can help you save on interest charges, while using a rewards credit card can earn you points that lead to future rewards. Of course, if unchecked, you could end up paying a lot of money in rates and fees. Here, we look at the pros and cons of using a credit card for making large purchases so that you can decide if plastic is the right way to go.

Why would I make large purchases using a credit card?

The potential benefits and features of using a credit card for life’s large items include:

• 0% purchase rates. These credit cards let you enjoy 0% interest on your purchases for an introductory period, usually between 6 and 24 months. This can translate into sizeable interest savings depending on the cost of your purchases.
• Rewards. Rewards credit cards let you earn points per $1 spent that can be redeemed for a variety of rewards including flights, hotels, car rentals, shopping vouchers, fashion, household, lifestyle goods and services, and more.
• Interest-free days. Similar in principle to 0% purchase credit cards, the standard interest-free days on your credit card (typically 55 days) gives you time to pay for your purchases without incurring interest charges. Be aware that most credit cards require you to fully pay your account balance by the statement due date to enjoy interest-free days.
• Flexible repayments. Compared to in-store financing, which usually involves fixed payments of the same amount each month, a credit card lets you make flexible repayments as often as you wish. As long as you make the 2–3% monthly minimum repayment, you can vary your payment amounts without penalty and even make additional payments when you can to repay your debt more quickly.
• Complimentary purchase insurance. This will vary, but many credit cards these days come with complimentary insurance perks that mean your large purchases would enjoy free purchase protection insurance, extended warranty coverage and best price guarantees.
• Making use of an existing credit account. As opposed to applying for new credit through in-store financing, using an existing card saves you the hassle of credit checks and possible waiting times.
• Extended interest-free periods. A select number of credit cards allow you to take advantage of exclusive in-store financing options which means paying no interest for up to 60 months, such as the Gem Visa, GO MasterCard and HSBC credit cards.

Learn more about in-store credit card finance options

What to watch out for when making large purchases with a credit card

These are the potential issues you might face when using a credit card for large purchases:

• Going over your credit limit. If you already carry a balance on your card, it’s possible you could exceed your credit limit when you make a large purchase (or purchases). If you’re not careful, you could find your card declined or incur overlimit fees.
• Interest charges. Being aware of when your 0% interest promotional period ends, and understanding how interest-free days are calculated, can help ensure that you don’t inadvertently incur interest charges.
• Making only minimum payments. If you only pay the minimum required amount on your card statement each month, your debt can stretch for years and cost you more in interest fees than the original principal amount. Learn how much you should repay each month.
• Other credit card costs. If you’re applying for a new card specifically for making large purchases, consider other fees including the card’s annual fee.

Tips for using a credit card to make large purchases

Having read and understood the pros and cons listed above, it’s important to carefully consider how and when you’ll be using your credit card for large purchases, as well as how soon you can repay the full amount. If you do decide to pay with plastic, here are some tips to help ensure that it stays affordable and convenient:

• Check eligibility requirements for interest-free offers. Whether it’s 0% interest on purchases during the introductory period, interest-free days or an exclusive in-store financing option, research the card’s eligibility requirements and ensure that you meet all the criteria for enjoying your interest-free offer.
• Budget for repayments. This is crucial to help you stay on track when it comes to repayments. With a good repayment plan, some discipline and consistency, a budget for clearing your full balance within the interest-free period can ensure that you stay out of debt.
• Pay more than the minimum each month. Don’t make the mistake of making only minimum repayments. Keep your interest costs low in the long run by repaying as much as you can as early as you can.
• Consider split payments. To further reduce interest charges, you can also pay for a portion of your purchase by cash or debit card, and put the rest on credit.
• Consider a balance transfer. If you’ve already paid for your large purchase with a credit card that charges interest, or if you already carry existing credit card debt, consider a 0% balance transfer card to help you save on interest fees and repay your debt sooner.

While credit cards can be a convenient and beneficial mode of payment, it’s important to weigh up the pros and cons of using them on your larger purchases since these may naturally take longer to repay. If you decide to go with one, make sure you research all available offers before deciding on the best card deal for your needs.