
Making car payments on a credit card can be a complex process, but it's worth exploring if you're struggling to pay your car loan. You can use a credit card to make a car payment, but be aware that this may not be the most cost-effective option.
Some credit card issuers offer cash advance services, which allow you to withdraw a portion of your credit limit in cash or use it to make payments on certain debts, including car loans. This service typically comes with a higher interest rate and fees than regular credit card purchases.
Using a credit card to make a car payment may not be the best choice if you have poor credit or high-interest debt, as it can lead to further financial strain.
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Pros and Cons
Making car payments with a credit card can be a bit of a double-edged sword. On one hand, it can offer some benefits, but on the other hand, it can also come with some significant drawbacks. Let's break it down.
Using a credit card to pay for your car can potentially save you money on interest, especially if you have a card with a 0% introductory APR. This can be a big deal, especially if your credit score is above 660, as the interest on conventional auto loans can be as high as 9% on used cars.
However, it's not all sunshine and rainbows. You'll also need to be aware of potential fees for balance transfers, which can range from 3% to 5% of the amount you move to the new card. This can undo any savings you might have made on the auto loan interest.
Using a credit card to pay for your car can also provide flexibility with payments, allowing you to make a payment when it suits you, rather than on the due date of your auto loan. This can be a big help if you're short on cash one month.
However, this flexibility can come at a cost. If you're not careful, you can end up paying more in interest over time, especially if you're not paying off the balance in full each month. And if you're not making regular payments, your credit score can take a hit.
Here are some key points to consider:
Ultimately, whether or not to make car payments with a credit card depends on your individual financial situation. If you're comfortable with the terms and conditions of your credit card, and you're confident that you can pay off the balance in full each month, it might be a good option for you. But if you're not careful, it can lead to a whole host of problems.
Payment Options
You can make your car payments using a credit card, but there are some things to consider. You can use your credit card to make your monthly car payments to earn cash-back, maximize your credit card rewards, or lower your interest rate.
Some lenders accept payments through money transfer services like Western Union or MoneyGram, allowing you to fund the transaction using a credit card, but be aware that your credit card issuer may treat it as a cash advance, subjecting you to credit card interest and cash advance fees.
You can also use a balance transfer to transfer your entire car loan to a credit card to get a better interest rate or more time to repay your loan.
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Considerations
Before making car payments on a credit card, it's essential to consider your credit limit. Check with your card issuer to ensure your credit limit is high enough to cover the car payment.
Making a monthly budget is crucial to avoid financial stress. Assess your income against your regular obligations and commit to a car payment that doesn't break your budget.
Using a credit card to pay off debt can create a longer-lasting crisis if not managed properly. It's a temporary fix that requires careful consideration.
Higher interest rates on credit cards compared to auto loans can adversely affect your financial health. This is something to keep in mind when deciding to make car payments on a credit card.
A credit counseling agency expert can help you understand the financial impact of making car payments on a credit card. They can provide personalized advice and guidance to make an informed decision.
Interest and Fees
You can use a credit card to make car payments, but be aware of the potential interest charges. Using a credit card can mean you pay two types of interest charges: the interest on your car loan and the interest on your credit card balance.
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The interest charges on your credit card can add up quickly, especially if you only make the minimum payment. This is because you'll be paying credit card interest on the transaction, in addition to the interest on your car loan.
To avoid interest charges, consider using a credit card with a 0% APR offer and pay the balance in full before the intro period ends. This way, you can make your car payments without incurring extra interest charges.
Transferring your car loan to a card with a 0% introductory APR can also save you on interest fees. However, be aware that you'll need to pay a transfer fee, and make sure you understand the details of the introductory APR and the card's APR if you don't repay the loan in time.
Using a money transfer service or getting a cash advance can add to your loan payment with additional fees. For example, a transfer fee of $21.50 and a cash advance fee of $10 or 3% of the transaction can add up to an estimated $331.50, an additional 10.5% of your monthly car loan payment, plus interest.
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Rewards and Benefits
Paying your car payment with a credit card can be a great way to earn rewards and benefits. You can earn substantial points, miles, cash back, or other perks by using a rewards card for auto loan payments.
If you participate in a rewards or cash-back program, and your rewards exceed the cost of potential transaction fees or interest, it could be beneficial. However, not all charges are created equal, so be sure to check with the card issuer to make certain car loan payments are eligible for rewards.
Using a credit card with a 0% introductory APR can save you money, especially if the interest on your conventional auto loan is high. For example, the interest on new cars averages about 7% if your credit score is above 660, and over 9% if your credit score is below 660.
Some credit cards offer airline miles, cash back, or other kinds of points-based bonuses that can make up for the fees and interest rate. If the rewards make up for the fees and interest rate, you might be able to make a case for using your credit card for a car payment.
Additional reading: Is Auto Loan Secured or Unsecured
Here are some benefits of paying your car payment with a credit card:
- Potentially lower interest
- Credit card rewards
- Regrouping time (when money is temporarily tight, using a credit card can buy you a month to get your financial affairs in better order)
Just be sure the value of these points and rewards exceeds the additional fees you'll pay to use your credit card.
Lender and Dealer
You can make car payments on a credit card, but it's essential to understand the implications of doing so.
The lender may view a credit card payment as a non-traditional payment method, which could affect your credit score.
In some cases, the dealer may not accept credit card payments, so it's best to check with them beforehand.
If the dealer does accept credit card payments, be prepared for potential interest rate implications.
A different take: Why Do Credit Card Payments Take so Long to Process
Will My Lender Accept?
Most lenders don't accept payments directly from your credit card due to high processing fees charged by credit card companies.
These fees can be a significant burden, so it's no surprise that lenders prefer cash-based payments from checking or savings accounts.
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Some lenders might allow credit card payments, so it's always a good idea to ask your lender about their policies.
However, even if your lender does accept credit card payments, be aware that you might have to pay additional fees, which could increase the price of your monthly loan payments.
Do Dealers Take?
Car dealerships generally accept credit cards, but it's not unheard of to run into resistance if you suggest charging a large down payment.
The median price of a new car in March 2023 is around $48,000, according to Kelley Blue Book, which could earn you 48,000 rewards points if you put the entire cost on a card.
Dealerships may absorb the typical 3% card-issuer fee on smaller purchases, like a $1,000 repair, but may insist on adding the fee to your out-the-door price for larger down payments.
Policies regarding credit cards are a dealership-by-dealership arrangement, so your mileage may vary.
For more insights, see: Car Dealerships No Credit Check No down Payment
Flexibility and Convenience
Using a credit card to make car payments can provide flexibility in your budget. You can charge this month's regular payment to your credit card and, if you're still squeezed next month, you can pay only the monthly minimum.
Flexibility shouldn't be a long-term or go-to strategy, warns personal finance analyst Derek Sall. He recommends using a credit card only if you're in a complete money crunch.
A convenience check can also be used to make payments via credit card. This type of check comes from the borrower's available credit balance, not from reserves.
Some credit cards offer 0% introductory APR, which can potentially lower your interest rate. For example, the interest on conventional auto loans averages about 7% on new cars and over 9% on used cars.
Using a credit card can also provide regrouping time when money is temporarily tight. You can buy a month to get your financial affairs in better order before the next car payment is due.
Here are some pros of paying a car payment with a credit card:
- Potentially lower interest
- Credit card rewards
- Regrouping time
Keep in mind that using a credit card to make car payments should be done with caution and only if absolutely necessary.
Frequently Asked Questions
What bills can I not pay with a credit card?
You can't pay mortgages, rent, and car loans with a credit card, but some bills like utility bills may be an exception with potential convenience fees.
Does Capital One accept credit card payments for auto loans?
No, Capital One does not directly accept credit card payments for auto loans. However, you can explore alternative payment methods listed above to make your payment.
Sources
- https://www.incharge.org/understanding-debt/auto/using-a-credit-card-for-car-payment/
- https://www.creditkarma.com/auto/i/can-you-make-car-payment-with-credit-card
- https://www.debt.org/credit/loans/auto/car-payment-credit-card/
- https://lanterncredit.com/auto-loans/can-you-pay-a-car-payment-with-a-credit-card
- https://upgradedpoints.com/credit-cards/can-i-pay-my-car-payment-with-a-credit-card/
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