The idea of buying your new car with a credit card seems cut and dry. As with any purchase, you give the salesperson your card and then sign when and where you need to make the vehicle legally yours. Before you take out a credit card specifically for one of the most significant purchases you’ll ever make, there are several factors you need to consider.
Does Your Dealer Allow That Type of Transaction?
While you may think that buying your new car using your favorite credit card is a great idea, your dealership may not share the same train of thought. Before you make the trip to the dealer, make a quick phone call. Ask them about their rules and guidelines for using a credit card when purchasing your new car or truck.
Some of the rules they may give you include restrictions on the models and trims available because of their cost. Remember, the rules are not universal. If you are planning to do business with more than one dealer, make sure you call each one. Be prepared to tell the dealer the limit on your credit card. If you have enough room for the vehicle in question, you may get the chance to use your plastic for the purchase.
There are times when the dealer does not accept full payment via credit card. However, do not get discouraged because they may allow a partial payment. There is a chance you’ll have some type of restriction placed on the partial payment option. For instance, you can only pay the first $10,000 of the total price with your credit card.
Get to Know Your Credit Card
If you are planning on using multiple cards to cover the cost, check each one carefully. Make sure you understand their limits and how much room you have left on each card. Once you know you have room, take the time to learn about the features of the card.
- Know your interest rates and how they are applied. Remember that the longer you take to pay off the credit card in question, the more you’ll need to pay in interest. Paying off the card quickly not only means the car is yours free and clear faster, but it also means you’ll be able to avoid costly interest charges in the future.
- You are getting something back for yourself with this big purchase. Yes, you get to enjoy the pleasures of owning your new vehicle daily or that long-awaited road trip you’ve been planning. Yet, there is more your credit card can do for you. According to U.S. News, there are several credit cards that offer some type of reward points or travel incentives for a future trip. When you finish paying off your car, you can enjoy using those points and incentives in the destination(s) of your choice.
- You can quickly pay off your new car. Make sure you have the cash on hand or a steady source of income that allows you to pay off the purchase as soon as possible. Read the fine print of your card and take advantage of any offers for no-interest cards receive.
Beyond knowing the features of the card you intend to use, you need to know your credit score. Before you walk into the dealer, make sure your credit is in good standing; the higher your score, the better. Not only does the higher score help put the dealer’s mind at ease that you’ll indeed make your payments on time, but it helps you avoid extremely high-interest rates.
Another important factor, according to Carfax, when making a large credit card purchase are the fees involved with the purchase. Beyond the price, you need to have the money to pay the required state fees. For instance, you need to pay the sales tax and registration fees to make the car legally yours. A processing fee is applied to the purchase. This is the fee your dealer must pay the card company or bank before they get your money. This is not a flat rate. It depends on your issuer and the amount of the purchase.
Research Your Vehicle
Researching your vehicle is as important as researching your credit card. What features do you need in it? How much do you plan to drive it, and how far do you travel daily for work or other activities? Are there features that are on your nice to have, but not required list?
As you walk around the dealership or view their inventory online, make a list of each model that interests you, and answer those questions. Use the list to narrow down your choices based on features, need, and cost.
Credit Card Purchases Are Not For Everyone
As convenient as it is to pay for anything with a credit card, it is not always the best option. There are a few red flags to watch out for that may give you an indication that plastic is not the best way to go. Read the fine print of your intended card(s). Make sure you understand the interest rates each charge. Unless you have the cash on hand or can acquire it before your first payment is due, you’ll have to pay these charges.
Another red flag is your timeline for paying off the vehicle. If you want to make it a short time, a credit card is an option. However, if you are looking to pay it off over a number of years, then you may want to consider another form of payment.
The final red flag to consider is your credit. If you do not have good credit, then buying a car is hard, no matter how you intend to pay for it. If you are recovering from bankruptcy, it is also a challenging time. Both situations mean you may not have the chance to get a reasonable interest rate, and the dealer may not give you the option of using a credit card.