My credit score is above average and as a result I get tons of postal mail from credit card companies to sign up. Incentives range from bonus airline miles all the way up to 5% cash back on purchases.
So if I were to buy a car for 15K and charge it all on my card I would get 750 dollars back from the credit card company. This is free money with no effort required.
Sounds like a great deal but there’s a slight problem. Most dealers place a 3K limit on the amount you can put on your card when buying a car. They do this because of the 1 to 2 percent transaction fee they have to pay to the credit card company.
Two percent of 15K is 300 dollars out of their own pockets. There’s no incentive for them to do this for you. Two percent of 3K is only 60 dollars, an amount they may be willing to give up to sell you a car.
Even if you only charged 3K on your card, at 5% cash back, you will get 150 dollars. Not a bad deal for you.
But the big question is are you going to pay the balance in full when the bill arrives? Most people do not know how to pay off a credit card. They just pay the monthly minimum and get caught in the spiraling world of debt.
The average rate for a used car loan is at 9%. If you have a credit card that charges 3% for the first six months you are saving money for the six months. You are already ahead of the game.
The danger is when the 3% offer ends and jumps to 19% or some other ridiculous number. Don’t automatically assume you’ll have more money in the bank six months from now. Many people get into debt because of assumptions.
If you do decide to charge your card on a down payment do not let the dealer know until a final price has been agreed upon. It may be a bit cunning but who cares. Your goal is to save as much money as possible.
So do I recommend buying a car with a credit card? Only if you have the cash to pay it off in full. Because what’s the point of earning cash back if you’re going to pay interest on the balance?
As for me I’m pretty good with managing my money and wouldn’t hesitate to use my card. But then again I’m too cheap to buy any car over 5000 dollars. My daily driver is a 1998 Camry with over 170K miles on it. I bought it for 3700 from a private seller back in 2009 and it still drives like a new car. Now that’s saving money!