When you want to buy a car, you probably won’t have enough money to immediately pay the full balance. There are several ways that you can pay for it, and using a credit card is a method you’ve probably considered. Although there are several pros and cons in paying with a credit card, responsibility is important. It’s a great method of payment if you can be responsible with your monthly payments.
Upsides: Low Introductory APR, Credit-Building
If you’re going to pay it with a credit card, you want to do it in a smart way. You want a card that has lower rates for the first six months, or even the first year. 0% APR is the best option. It means that for the first six months, or the first year (whichever deal comes with your credit card), you will not have to pay interest for that amount of time. This gives you a head start to pay as much money as possible to make a huge dent in the amount you owe before the bank starts collecting interest. Paying with a credit card is also a great way to build credit. If you make all your payments on time and pay it off in a timely fashion, this shows the credit bureau that you are responsible.
Downsides: High APR in Future, Credit Risks
There are some obvious downfalls with using this method. If you miss a payment or don’t pay enough of it over a certain amount of time, your credit rating will drop and the interest will cause you to pay more than you actually spent. Letting interest accumulate can be dangerous for your credit score and dig you into a deeper hole debt-wise. This method is only suggested for those who are responsible with their credit card. To be more responsible with making payments, you should come up with a budget and stick to it, no matter what. It’s also important to pay more than the minimum payment each month because you will end up paying off the balance faster.
Many people end up doing this because auto loans are often secured. This means that if you don’t make your payments, they can take back your vehicle (or something of equivalent value). This is obviously not the same case for a credit card. With a credit card, the only thing you have to worry about is interest–and the possibility of having a low credit score if you aren’t responsible with your payments. That said, these are real and serious risks, and you should proceed with consummate caution if you decide to pay for a car in this fashion.