Car Payment Options: Can You Pay a Car Payment With a Credit Card?
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Paying Car Payment with a Credit Card
Third-Party Credit Card Processors
Balance Transfer Credit Card
Pros and Cons of Making Car Payments with Credit Cards
Pros of Making Car Payments with Credit Cards
While car payments are due in full on the due date each month, credit cards allow an individual to pay only the minimum by their statement date and then carry a balance. Although it’s never a good idea to charge more than one can afford (and outstanding balances are subject to interest charges), this can be an option in the event that unforeseen expenses make cash flow tight in a given month. It also provides more flexibility timing-wise, allowing an individual to make a payment when it suits them (for example, on pay day), instead of their monthly auto loan due date. Charging big-ticket items to a rewards or cash back credit card may increase benefits and earnings (if car payments are eligible under the rewards program). It can also help a car buyer hit bonus thresholds, such as welcome bonuses that provide increased earning for spending a certain amount, without spending more money than they already are. Some balance transfer cards offer promotional periods with 0% APR charged on loans that are moved over from elsewhere. In such cases, it may be possible to save on interest. As anyone who knows how car loans work will attest, these loans are typically secured using the auto itself as collateral. This means that if the buyer fails to make payments, their car can be seized. But credit card debt is unsecured revolving debt, reducing the risk of car repossession.
Cons Making Car Payments with Credit Cards
Many of the workarounds that enable a car buyer to charge payments to their credit cards incur sizable extra fees. Whether it’s a 3% processing fee charged by a third-party who can facilitate payment, ATM fees, higher interest or cash transfer fees, or even prepayment penalties for paying off the balance in full, these all increase the cost of buying a car, an already depreciating asset. Ultimately, paying by card could cost more than the original car loan or than the cost to refinance a car. Credit scores are determined, in part, by an individual’s credit utilization ratio, or the percentage of available credit that they are using. While some credit utilization is a good thing — it shows lenders an individual can manage their credit effectively — too much signals risk to the lender. FICO, for example, looks for utilization below 30%. While installment loans, such as car loans, don’t factor into credit utilization in the same way, credit card balances do — and charging car payments may cause one’s credit utilization to increase beyond the recommended threshold. This can result in a drop to one’s score. Zero percent APR offers on balance transfer cards often only apply for a promotional period — and interest climbs after that. If the car loan is not paid off before the new interest rate kicks in, the buyer may end up ultimately paying more for their car.
How Might Paying Car Payments With Credit Cards Affect Your Credit Score?
Other Ways to Pay Your Car Loan Payments: Refinance Your Car
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