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So you’ve found the car of your dreams, done a test drive and kicked the tires, and you’re ready to bring it home. Should you buy your new car with a credit card? Can you even put the purchase on plastic? We’ll help you figure out whether it’s even possible to pay by card, and whether or not it’s a good idea.
Will auto dealers let me use a credit card?
Often, auto dealers won’t let you put the entire sale price on your credit card. The reason is that whenever you make a purchase with credit (or debit, for that matter), the merchant has to shell out a transaction fee in the realm of 1% to 3% of the amount charged to the card. This money goes to the credit card network and bank, and takes a significant chunk out of the dealer’s margin. The average profit margin on a car sale is just over 2%, and tacking on a transaction fee shaves down an already-thin margin.
For that reason, many auto dealers won’t let you put the entire amount on your card. However, they may let you charge part of it, up to a predetermined limit – maybe $2,000 to $5,000.
So is it actually a good idea to pay via credit?
Whether you should make that payment with credit depends on the circumstances surrounding it. If you’re looking for rewards on your purchase and can commit to paying off the balance that month, go ahead. It’s a good way to make a little money back. However, if you’re thinking about using your card to make the payment over time, be very careful.
Using a 0% APR credit card, which gives you a period of time to pay off a purchase without accruing interest, may be helpful if you’re sure you can get rid of the debt during the zero-interest period. However, it’s a risky proposition. Auto loan rates tend to be low, especially compared to credit cards. In 2013, the average 48-month new car loan rate was 4.43%, compared with 12.95% on credit cards assessed interest. That may not seem like a large amount, but it adds up, especially for large purchases that you’ll be paying off for a long time.
What are the best credit cards for buying cars?
If you’re looking to use a card on your purchase, your first look should be to an auto credit card. Many big names, like Subaru and GM, offer branded credit cards with excellent rewards you can use for car purchases. Sometimes, they come with great perks as well – for example, the BuyPower Card from Capital One® -Get The Card That Helps You Get The Car comes with the benefits of World Elite MasterCard.
However, if none of the auto cards catch your fancy (or if your car’s manufacturer doesn’t offer one), your best bet might be an all-around high-earning card. The Barclaycard Arrival Plus™ World Elite MasterCard® is a perfect example: for an annual fee of $0 for the first year, then $89, you’ll earn 2 miles on every dollar you spend, and you’ll get 5% of those miles back every time you redeem.
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