Can you buy a car on a credit card?
The days of cold hard cash being the only form of tender accepted for purchases is long gone. In a world of debt, credit and convenience, we've yearned for simpler and safer ways of transacting. From bank transfers, cheques, and money orders to the digital convenience of EFTs (Electronic Funds Transfers), debit and credit cards to Snapscans, Zappers and NFC technology, we've changed the way that we transact.
Charge it!
One of the burning questions is whether or not it is possible to purchase a vehicle on a credit card. The short answer is Yes, but it leads to another question: Why would you want to?
While it is possible to purchase a vehicle on a credit card, there are a few considerations before deciding that this is a good idea. The first is the interest rate levied on credit purchases. Assuming that you do not have the full amount available as a positive balance in your credit card account (because then an EFT is a simpler and more cost-effective way of going about things), you will be borrowing money from the bank.
Paying for a car: cash, finance, or personal loan?
Interesting times
The interest that you will be charged on this ranges anywhere from over 20% of the amount to just over 10% if you are a wealthy, high-level account holder. For the average man on the street, your interest rate on a credit card is in the region of 20.5% while vehicle finance interest can be around the 12% mark for those with a good credit score. Thus, it makes no sense to purchase the car on a credit card. You will only end up paying more in the long run.
The repayments are also guaranteed to be higher as the credit card will have to be settled in a shorter timeframe when compared to vehicle finance. Financing institutions can offer you a lower interest rate on vehicle finance as the loan term is longer, while credit cards have higher interest rates due to the shorter repayment terms.
Then comes the surcharges that are incurred with a credit card purchase. While it is largely dependent on the dealership and the deal you manage to strike with them, the average surcharge can be anywhere between 3.5 - 5% of the vehicle purchase price. This further hikes up the amount that you will end up paying, both in the long run and as a monthly installment.
Related: Where can you finance a car with bad credit?
Verdict
Vehicle financing is still the most cost-effective way of financing a car, offering the best interest rates and the most flexible repayment terms. Only home loans offer you longer terms. So leave the credit card in your wallet or purse, and sign on the dotted line for financing if you have to. But don't forget, the best car in the world is the one that is paid up! and yours, not the bank's.
