Can you make a car payment with a credit card?
Most lenders don’t accept credit cards for auto loan payments, but even if your lender does, you have to be thinking …
Most lenders do not accept credit cards for auto loan payments, but even if your lender does, you need to think twice before using this option. If you’re not careful, you could end up paying more than your original car loan amount.
But I support you! In advance, we’ll cover everything you need to know, so you can decide what’s the best option for you:
– Benefits of making a car payment with a credit card.
– Benefits of making a car payment with a credit card.
– Disadvantages of making a car payment with a credit card.
[Read: Best Rewards Credit Cards.]
How to make a car payment with a credit card
There are many ways to pay with a credit card, even if your lender doesn’t directly accept cards. Let’s take a look at each:
– Rewards credit cards.
– Credit card with 0% introductory purchase APR.
– Balance transfer credit card.
– Cash advance.
– Money transfers.
Rewards credit cards.
According to a 2021 report, ” Report on United States Auto Loan Market Size and Household SpendingAmericans with a car loan pay an average of $ 412 per month.
Since the monthly payments can be high, it’s tempting to use a credit card to earn all of these rewards. But before you start packing your bags for Bora Bora, you should know that most lenders don’t allow direct credit card payment on a car loan. And even if they did, there would probably be a convenience fees.
These fees are additional fees that a lender charges you for the convenience of using a credit card. The fees usually cost 2-3%.
You really don’t want to pay more for your car than you already do, do you? But if your car dealership accepts credit cards, there is another option you can try.
0% introductory purchase APR credit card
You can bypass the loan process completely and buy a car with a credit card which offers an introductory annual purchase percentage rate of 0%. This approach allows you to make interest-free payments using your credit card. These cards have introductory periods that range from around 12 to 18 months. But you’ll need a credit limit that’s high enough to cover the cost of a car, and you’ll need to find a dealership that will accept a credit card as payment for the full price.
If you think you can repay the loan within this time frame and have very good credit, this is something to consider. But again, convenience fees can arise.
Please note: if you miss a payment, you could lose the 0% APR. The regular rate will be much higher so this is not recommended unless you are on top of your payments.
Balance Transfer Credit Card
It is also possible to transfer your car loan to a credit card with balance transfer. Let’s say you have a $ 10,000 auto loan. If you have excellent credit and may be eligible for a balance transfer credit card, you can transfer the loan amount to a credit card.
Balance transfer credit cards offer an introductory purchase APR of 0% for a period of time, typically around 12 to 18 months. So this is another opportunity to make interest-free payments using your credit card. But on the downside, you may have to pay a 3% to 5% balance transfer fee.
Of all the ways to make a car payment with a credit card, this option is one of the worst. Here’s why: You often don’t have a grace period, so your card issuer starts charging interest right away. And you don’t pay interest on your purchase APR. No it’s at a much higher level cash advance APR. Some APR cash advances can be 25% or more.
In addition to a high APR, there is also a 3-5% cash advance transaction fee. As you can see, this is an expensive way to make a car loan repayment.
Technically, this is an option, but there are downsides. Companies that offer this service, such as Western Union, have a relationship with participating companies. So you can fund your payment with a credit card through Western Union or similar money transfer Business.
The reason for avoiding this? It could be treated as a cash advance by your credit card issuer. If so, you are considering a transaction fee and a high APR on the transferred amount.
Benefits of making a car payment with a credit card
If you have a high credit score and high limits on your credit cards, you may be able to use a credit card for payment and limit the damage to your credit score.
On the plus side, too, if you use a credit card with an introductory 0% APR, you can pay off your debt without paying interest. You have to factor in the transfer fee, but the interest savings could be worth it. There is also the possibility of earning a large number of rewards if you use the correct rewards credit card.
But before you take the plunge, make sure you understand the downsides, as there are quite a few to keep in mind.
[Read: Best 0% APR Credit Cards.]
Disadvantages of paying for a car with a credit card
I mentioned the convenience fees before, but there are two other downsides to consider before paying for your car loan with a credit card.
– Potential to get into debt. If you’ve transferred your loan to a credit card with balance transfer, your goal is to pay off the debt before the introductory 0% APR ends. Life is unpredictable, so if you are having a financial crisis, like losing your job, you might have a hard time making the monthly payment you need to finish paying off the balance by the end of the term. introduction. And if you miss making minimum payments, you could lose your 0% rate and end up paying compound interest at a much higher APR on your balance.
– Possible drop in credit rating. You have a credit utilization rate, which is the amount of credit you used versus the amount you have available. When your credit card balance exceeds 30% of your credit card limit, your score usually goes down. If you’re ready to survive the temporary drop, that’s fine. Just make sure that you won’t need to apply for credit in the near future. Wait until your credit score improves so you don’t get hit by high interest rates on new credit.
More American News