Whether you can make a car payment with a credit card depends on the lender of the car loan. Some lenders accept credit card payments without any problems. Other lenders accept credit cards but charge hefty processing fees. In that case, you will need to calculate whether the payment with your credit card is worth the fee. However, many lenders do not allow direct payment by credit card.
But there are ways around that limitation. You can use a 0% APR credit card. These cards come with a period of limited interest of 0% (usually 6 to 18 months) and you can pay off the loan without accruing interest. You can use this credit card to transfer your automatic loan balance to a card called a balance transfer. If you can fully repay your car payments during that introductory period, you won’t accrue interest on the total loan. Balance transfers can save money and pay off loans, but only if you have a repayment plan to stick to.
You can also pay for your car with a credit card through a cash advance. Cash advances require you to withdraw cash with a credit card. However, cash advances are not technically your own money, so this is different from withdrawing cash with a debit card. For this reason, cash advances come with higher fees and even higher interest rates. In addition, interest begins to accrue quickly. If you’re already struggling to pay for a car, using a cash advance probably won’t be the best financial move.
Technically, you can pay for your car with a credit card of any form or form. However, there is definitely buy-in to this method. Take a look.
The pros of paying a car loan with a credit card
You can save hundreds of dollars in interest by transferring your automatic loan balance to a 0% APR credit card. Not only that, but you can also pay back your car faster. It is important to note that this method converts auto loans from secured loans to unsecured loans as revolving credits. As a secured loan, your car serves as collateral and can be disposed of if you fail to pay. But with your car payment with a credit card, you no longer risk losing your car.
Converting car loans into revolving credits also offers unique perks. Revolving credits mean you can transfer balances from statement to statement. This alone does not result in a penalty as long as you pay at least the minimum amount on the statement. This kind of repayment flexibility can be a great asset to you.
But while carrying balances and paying the bare minimum will keep you afloat, that’s the number of people who end up in serious credit card debt. Before you know it, you didn’t pay it back fast enough, so you could borrow more than your original loan was worth. If you use this method, you need to make sure that you can afford to repay the entire loan before the 0% term ends. That way, you can avoid big interest hits.
Disadvantages of paying a car loan with a credit card
A major drawback of paying off a car loan with a credit card is the potential harm to your credit score. Credit reporting agencies see unsecured loan/revolving debt that is far more unfavorable than secured loans. So even if you’re paying on time, your score won’t be that high. In addition, there is no doubt that you will put a fairly large balance on your card, so your overall credit usage will increase significantly. The ratio of credit utilization plays a big role in the score. If you use too much available credit, your credit score usually drops. This can affect future loan and credit card interest rates.
A typical 0% introductory APR offer lasts about 6-18 months, so you won’t have an interest-free loan forever. Interest eventually begins to accrue and you have to pay off the loan. If you can’t repay your loan balance within that time, you may end up paying more interest than the original loan.
It is also important to note that using a 0% APR credit card is not an easy option available to everyone. These cards often require very good or excellent credit scores for approval.
For it to work, you have to pay back and spend incredibly responsibly. Before you think about how to do this, you should thoroughly assess your financial situation. That way, you can prepare yourself and your finances for the responsibilities that come with paying off your loan.
Financial advisors can help you create a financial plan and figure out what’s best for your financial situation. SmartAdvisor matching tools can help you find people to work with your needs. First, answer a series of questions about the situation and goals. The program then narrows your options from thousands of advisors to three trustees who fit your needs. You can then read your profile to learn more, do phone calls and in-person interviews, and choose who you want to work with in the future. This allows you to find a good fit while the program does a lot of hard work for you.
Tips for paying a car loan with a credit card
- Before you actually start the card application process, look at your income and expenses and take stock of your monthly budget. Most 0% APR credit cards have a balance transfer option of 6 to 18 months. Determine if you can repay the loan within the prescribed time and make sure you get one of the best balance transfer credit cards to help you.
- If you finally get a 0% APR credit card, be sure to read the card’s contract documents. If you don’t repay the entire loan before the introductory period ends, many credit card issuers can charge interest on the entire balance, not just what’s left. Also, pay attention to the balance transfer APR after the intro period. It will give you an idea of how expensive things can get if you need to start paying interest.