Buying a car is a huge investment, whether new or used. While many people prefer using auto loans, people can use their credit cards depending on the car’s price and the car dealership policies.
Many car dealers will accept credit cards when paying for the booking amount, usually approximately 5-10% of the car value. However, most will not allow buyers to pay for the remaining amount using their credit cards.
People who want to pay the full price using credit cards should go to a dealership that accepts credit card payments and have a card with high credit limits, big rewards, and a long 0% APR period. However, before making that decision, people need to look at what goes into credit card car purchasing and when is the best time to use that payment method.
When To Use Credit Card
Enough liquid cash
People who have a lot of liquid cash that they are not investing or using for anything else can pay for their car in full using credit cards. They can then use the cash to pay back the credit card debt in full.
That helps them build a good credit score and earns them many miles and points, enough for them to finance a vacation. However, people should not use it ness they are getting over 5% returns on spending.
To maximize returns and rewards, buyers should time their payments when it’s time to fulfill the spend-based offer or get milestone rewards.
Low EMI rates
Buyers who do not have enough liquid cash but have high credit card limits with appealing EMI offers can also use this payment method. Yes bank, for example, recently developed a 9.90% return on investment on EMI, almost the same given for auto loans.
People with low EMI rates who pay for their cars with credit cards don’t need to go through the hypothecation and documentation on their Registration Certificate.
When Not To Use Cred Cards
When running a business
Business people should stay away from this option because cars depreciate. The better option is to pay for it in installments and use part of the money to invest in other things like stocks or their business, giving them more returns than the auto loan.
If, for example, they invest in stocks with a 15% ROI but have a loan with a 10% ROI, that saves them 5%. Also, if they are in the 30% income tax category, paying for the car in installments saves them on the income tax front.
When trying to avoid taxmen
While nobody wants to evade paying their taxes, people don’t like triggering them to look into their accounts. If someone pays for their car 100% upfront, that will trigger the taxmen to review their PAN, especially if it is an expensive car.
When trying to better credit score
Credit mix is one of the main things that determine people’s credit score, which means it’s essential to have a good mix of unsecured and secured loans.
Auto loans are secured loans, often referred to as good loans, and having them on the profile increases people’s credit score. If people forego that and pay for their car 100% using credit cards, which is an unsecured loan, it might not do so much for the credit score.
There are good times to use a credit card to pay for a car, and times people should not consider it. People who use auto loans can use a car loan refinance to get lower interest rates and better terms. According to Lantern by SoFi, “auto loan refinancing is taking out a new loan to pay off your existing car loan. Depending on individual financial situations, applicants could qualify for a lower interest rate through refinancing—which could mean lower monthly payments and saving money in the long run.”
