Buying a car is a significant financial decision, and one question that often comes up is: “Can I buy a car with a credit card?” The short answer is yes, but there are several factors to consider before you decide to swipe your card for such a large purchase. This article will break down the process, benefits, drawbacks, and some tips on using a credit card to buy a car.
Can You Buy a Car with a Credit Card?
Yes, you can buy a car with a credit card, but it’s not as simple as it seems. Not all car dealerships accept credit cards for the full purchase price of a vehicle. Some may allow you to put down a portion of the cost on a card, but not the entire amount. This is mainly because of the high transaction fees that credit card companies charge merchants.
Many dealerships will let you use a credit card for a down payment. This can range from a few hundred to a few thousand dollars. Using a credit card for the down payment can be beneficial if you want to earn rewards points, cashback, or meet a spending requirement for a bonus offer on your card.
Benefits of Buying a Car with a Credit Card
Buying a car with a credit card might sound unconventional, but it can offer unique advantages that make it worth considering. From earning rewards to improving your credit score, this approach can provide benefits that traditional financing methods may not offer. Here’s why using your credit card for a car purchase could be a smart financial move.
If you’ve enough liquid cash
If you’ve enough liquid cash sitting idle then yes, you can happily go and swipe your card and payback in full the next month.This way, you’ll get lots of points & miles that’s enough to cover a weekend domestic trip.
Those who’re thinking about buying a car on a card usually belong to this segment. But this is not a wise idea, unless you get outstanding returns on spend, like 5% or above.
Low EMI Rates
If you don’t have liquid cash but still have a high credit limit with an irresistible EMI offer, you can make use of it which is almost the same as the ROI given for car loans. Paying by credit card is a good idea in this case because you don’t need to get into all those documentation & hypothecation stuff on your RC!If you belong to this segment, usually you’re in <10L range car. If you’re looking for >10L segment cars, you probably need to read the next topic.
When You Shouldn't Buy Your Car with a Credit Card?
Basically paying 100% of the amount (either by card/EFT) for a car (or) a home loan is not the right way to handle money, especially when your lifestyle is well settled with basic needs. Let’s see why!
If you’re a Businessman
If you’re running a business, you shouldn’t buy a car with full cash because you’re investing in a depreciating Asset. You would rather invest the same amount on Stocks/Mutual funds or even better – in your own business that can fetch you more returns than your Car loan ROI.
For example, if your investment in stocks gives 15% returns and if you’ve taken a car loan at 10% ROI, you still save 5%. If we are talking about a 10 Lakh car loan, you’re saving a sweet Rs.50,000. More than 90% of the luxurious cars (Audi/Merc/BMW) that you see on the road are on loan for a reason. It’s not that they can’t afford to pay full, but they know a way to get better returns on the money than buying it upfront.Apart from that, if you’re in the 30% income tax slab, this will save you on the income tax front too.
If You don't like visiting your CA Regularly
If you’re buying a car by paying 100% upfront, this “may” trigger a flag on your PAN for a review. This may not be true for small cars in ~5L range, but for bigger cars, chances are higher.You still don’t need to worry, as long as your ITR supports the spends.Most of us are not trying to evade the tax system, but dealing with taxmen is still a time consuming process.
For a better a CIBIL score
One of the factors that decides your credit score (CIBIL/Experian/Crif) is your credit mix. Meaning, you need to hold a good mix of sSecured loan & unsecured loan.
Fortunately as a car loan is a secured loan (good debt), having it on your profile will certainly improve your Credit score.This is quite important if you’re dealing with too many cards, as having secured a loan on profile is a good sign for the issuer to give you a better credit limit or even for card approval at times.
Is Paying for a Car with the Credit Card Worth It?
You may be able to use a credit card to pay for a car — or at least a portion of it, such as the down payment. However, policies differ from dealer to dealer, and some do not accept credit card payments. There may be some advantages to using a credit card to purchase a car, but doing so may cost you a lot of money in interest and harm your credit score if you can’t pay off the balance.
You won’t want to finance a car with a credit card most of the time. Credit card interest rates are high, especially compared to personal loans and car loans.
Alternatives to Using a Credit Card to Purchase a Vehicle:
- Take into account car financing.
- Look for a co-signer.
- Make use of cash.
If you decide to get an auto loan, shop around and compare offers to ensure you’re getting the best deal possible.
Final Thoughts
So, should you buy a car on a credit card? Yes & No. There is no single answer for this as each of our profiles is different. It depends on one’s financial situation and a lot of other factors as mentioned earlier.
But if you’ve a credit card that gives significantly higher rewards it’s perfectly OKAY to buy your dream car on a credit card.
FAQ'S
1. Can I pay the full price of a car with a credit card?
Not all dealerships allow full payments with a credit card. Most allow partial payments or down payments.
2. What are the benefits of using a credit card to buy a car?
Benefits include earning reward points, cashback, and convenience. Credit cards also offer buyer protection.
3. What are the drawbacks of using a credit card for a car purchase?
Drawbacks include high interest rates, potential transaction fees, and the risk of negatively impacting your credit score.
4. How can I avoid high-interest charges when buying a car with a credit card?
Consider paying off the balance quickly or transferring it to a card with a 0% introductory APR offer.