Can you buy a car with a credit card?
Cars are expensive. So you often need to borrow money to get behind the wheel. But while most Australians opt for car finance or loans to help them fund their purchase, others wonder: ‘Can I buy a car with a credit card?’
Yes, it’s possible.
But, is it a wise thing to do?
Should you consider buying a car with your credit card?
A few years ago, the answer would’ve been a straight ‘no’. That’s because credit cards typically come with high interest rates making them an expensive way to borrow money.
However, thanks to 0% deals, low introductory rates and reward points, there are a few instances when it might be a good idea.
- You’ve got enough cash to pay for a car outright, but sticking it on a card will earn you major points. Pay the balance in full with your next repayment, and watch your rewards balance leap upwards.
- You’ve scored a 0% or low-rate deal on your new credit card and have the willpower and funds to pay off the debt before the honeymoon period ends
- You’re buying a car that costs less than $5000 and have a low-rate or interest-free card. As above, you’ll need to clear the debt before the offer ends to avoid a hefty revert rate.
But, if these scenarios don’t apply to you, then think twice before getting out your card. That’s because there’s a real danger your costs quickly rack up.
For example, imagine you bought a $10,000 car on your credit card. Your card has an interest rate of 15% and you only pay the minimum repayment (approximately 2% of the balance) each month.
It would take over 31 years to pay for the car. And you’d have to pay an eye-watering $15,095 in interest charges. Ouch.
Are there any advantages to buying a car with credit card debt?
Low introductory ates
Some credit cards offer low or zero interest rates on new purchases or balance transfers for an introductory period. If you take advantage of these offers by putting your new car on plastic, you could minimise the amount of interest you end up paying.
But, be careful! You need to clear the debt before the low-rate period expires or you could end up paying more than 20% interest on your debt.
Buying a car with a credit card for points seems like a no-brainer. It’s a big-ticket item so you’ll rack up reward points by the thousands, right?
Credit card reward caps may limit the number of points you earn in each month or year. So check your card’s terms and conditions before reaching for the plastic. Then there’s the possibility of credit card surcharges (see below) that can immediately cancel out any value you get from accumulating points.
Credit cards are pre-approved lines of credit. This means you can spend up to your credit limit without the worry of rejection.
But, don’t let this be the main reason you reach for your card. At National Loans, you can get pre-approved for car finance in as little as an hour so you can shop with confidence.
What are the disadvantages of buying a car with credit card debt?
Every time you buy something on your credit card, the vendor pays a processing fee to the card companies (typically between 1.5% to 3% of the purchase price). Often, vendors pass this cost on to you.
High interest rates
Fail to pay your balance in full by the time the introductory period ends on your credit card and you could be stung by a sky-high revert rate. Some credit cards charge as much as 20% – which is a lot more than a standard car loan.
Balance transfers aren’t guaranteed
Transferring your car debt onto a new credit card with a 0% interest rate sounds great in theory. But, in practice, it’s not that simple.
Firstly, there’s no guarantee you’ll get approved for a balance transfer credit card. Then, if you do get approved, you might not be able to transfer all your car debt over as many cards have balance transfer limits. Finally, balance transfers can negatively impact your credit score as each application is listed on your credit report.