Purchasing a new car with a credit card makes a lot of sense these days, considering you earn massive reward points with your card. The crucial thing here is whether you can afford to make timely payments when your statements are due to maintain a positive credit score through the year.
You can justify paying for a new car with a credit card when you do not have ready cash at the time of purchase, and you know that you can clear the balance within a short timeline. You could apply for a card that offers 0% APR for balance transfers on short-term loans with zero interest.
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You have Three Options to Consider if you’re Buying a Low-priced Car
The first logical thing to do is check whether your dealer allows credit card purchases entirely, or just the down payment – up to a specific limit. For instance, some dealers allow up to $3,000 car purchases with credit payment and bank transfers on subsequent payments.
The second thing you must verify is your credit card limit to make sure your available credit is enough to cover the required amount for your car purchase.
Third and most important is whether you have ready cash to pay your balance when your card statement closes every month. The high-interest rates charged on such huge payments often cancel out any rewards earned; making this mode of car payments a poor choice if you pay the balance in installments.
Buying a Car with a Credit Card
Let’s say you want to take advantage of an advertised sign up bonus and decide to charge your credit card, say, with Chase Sapphire Preferred, to scoop up the 60,000 bonus points. You’ll feel elated, but here’s the catch – the Chase Sapphire Preferred credit card APR averages 21.83% based on your bank balance.
Now, if you charged a $10,000 car purchase to your card at a lower rate, say, 17% APR with a five-year repayment plan, guess how much you’d pay over that period? $5,000.
Yep, you read it right!
This is like a down payment for a brand new car, only five years later, and by the way, you do need to replace your car every five years for the re-sale value.
On the positive, if you do have the cash to pay off your credit within a month or so, charging a $10,000 car payment to your Chase Sapphire Preferred will not impact your rewards negatively since you can afford to pay off your bill in full.
Before you put a significant amount as mentioned above on your credit card, make sure your bank balance stays on the positive otherwise, the interest rate will drive you insane.
Open a credit card with a 0% APR offer and that it specifically applies to new purchases as there are chargeable fees(3%-5%) linked with balance transfers.
Car Dealers Concerns
“Buying a new automobile with a credit card is not as easy as it sounds legwork. However, if you the card only take a small amount (down payment), you’ll find more dealers willing to accept that deal.” Mike Spencer.
According to Mike, a car dealer in Chicago, many dealerships hesitate to accept colossal amounts charged to credit cards because of the processing fee (up to 3%) they pay when you swipe your card. However, you can negotiate your way through the price before delving into the payment mode – then go to the next round of further negotiations and perhaps agree to charge a portion of the entire cost.
Which Credit Card Best Suits You?
Best for: Auto dealership program
To keep it simple, the American Express Car Purchasing Program connects its clients to thousands of automobile dealers in the US. The dealers accept an American Express card from $2,000 of the purchase price. This is a perfect choice because you don’t have to scroll through tons of websites and make numerous phone calls to get the right dealer who will accept credit card payments.
Best for: 0% APR within the initial 12 months
The Citi Simplicity Card is another excellent option to consider. It offers 0% APR on all purchases for one year (and balance transfers for twenty-one months). This offer favors folks who want to buy a reasonably cheap car with flexible payments spread across a stretched period (12 months).
Before you sign any contract, however, make sure you’re confident with the numbers, and you’re triple e sure you can afford to pay off your card before the offer ends. If you don’t, you could be paying anywhere between 14% – 25% interest rate after the one year grace period.
Earn Points/Rewards with your Credit Card once you have picked out your dream car. You may want to get the best deal from both the credit card company and your preferred car dealer. To get the most out of the credit card, use a newly opened can to scoop up the introductory bonus offer.
Alternatively, you can pick a card that will earn you bonus points for buying a car using a credit card or a card that has ongoing valuable rewards once you meet the spending threshold.
If you want to earn big with your car purchase, go for American Express Reward cards or the Chase Ultimate Rewards to earn transferable points. The Blue Business® Plus Credit Card earns you double points on the initial $50,000 in purchase every year. That’s an excellent deal if you put a car down payment with the Amex auto offer.
The Business Platinum Card® from Amex also offers a fantastic welcome bonus –up to 75,000 points if you spend $15,000 in eligible purchases within three months of account opening. A car purchase is a great way to earn the initial bonus, plus a 50% bonus on any purchase upwards of $5,000 or more (max 1 million bonus points per year).
If buying a car with a credit card is what you want, you have an excellent opportunity to earn thousands of bonus points once you hit the required spending thresholds to unlock the pleasant land of rewards, and more rewards like free air miles, hotel stays, Uber rides and so much more.
Note that many dealers do not readily accept credit card payments, and those who do will charge extra fees to cover the card processing fees (3% average).
I hope you found this article helpful. Share your credit card car purchase in the comments section below.