Car are expensive items so it’s natural to want to shop around for new ways to pay for one. That’s what prompted a customer to ask one of our sales team this question earlier in the month.
Can you buy a car with a credit card instead of a car loan?
The answer is, technically yes you can buy a car with a credit card but we’re not sure you should.
Buying a car with a credit card
There may be benefits to buying a car with a credit card. You may get reward points, travel points or other incentive as the car would count as a purchase.
You also likely already have a credit card or two so there would be no application process to go through.
There are also a couple of issues with spending such a large amount of money on a credit card.
Insufficient credit limit
Most of us with mainstream credit cards won’t have anything like the credit limit to afford a new car. We may be able to squeeze in a used car if we’re lucky but we won’t have the credit capacity to buy a car with a credit card.
Expensive for the dealership
Not many dealerships would accept credit card as a payment method for a car. We have to pay a processing fee of anything up to 3% of the total cost of the purchase to the card company.
That means a significant loss on the price of the car or charging you that extra percentage to make it up. Neither are very palatable.
Expensive way to borrow
A credit card is very likely the most expensive form of credit you access on a regular basis. If you take the average credit card interest rate of around 19.9%, even a cheaper $10,000 car will cost $4,548 in interest over 48 months.
A car loan with a rate of 6.5% will cost just $1,033 in interest over the same 48 months.
Even if you have a bad credit car loan with a higher interest rate it will be significantly cheaper than most credit cards.
Car loans for cars
If you need to finance a car, a car loan is the best way to do it. The product is designed for cars, offers much cheaper rates than credit cards and you can get pre-approved without impacting your credit score and before you commit to your car.
It’s the only way to finance your new car!
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!