When Buying a Car with a Credit Card Makes Cents

the new car we bought on a credit cardWe just purchased a brand new car (Honda Accord Coupe EX-L) on a credit card.  You think we’re crazy?  Think again.  We instantly saved ourselves about $500 by paying with plastic.  Sure, there are a million reasons why this might sound like a bad idea in regards to long term debt.  However, if you have the cash to back it up, a credit card is the smart way to pay for a new car.

Consider the following 2 points:

  • Rewards / Miles Credit Cards – Typical rewards cards generally earn the consumer somewhere in the ballpark of 2% cash back.  If you buy a new car for $25,000 with your rewards credit card, you just saved yourself $500.  If you have an airline miles rewards card, as I do (Southwest Visa), you can earn yourself a free round trip flight for about $20,000 in purchases.  With airline fares continuously skyrocketing, this round trip airfare ticket is easily worth about $500.
  • 0% Interest Rate – Many credit card issuers entice potential consumers with various introductory 0% interest rate deals for a certain period of time.  This introductory rate period usually spans somewhere between 6 months and 1 year.  Let’s say you buy a $25,000 car on your 0% interest for 1 year credit card.  You then invest the $25,000 in a 1 year CD (a non-liquid investment that prevents you from spending the cash) earning a modest 5%.  At the end of 1 year you have $26,250.  You immediately pay off the $25,000 car, leaving $1,250 to be returned to hip national bank. 

Do you think those savings are meager, or not worth the effort?  Well then head over to your bank right now and donate that amount of money into a complete stranger’s bank account.  No?  I didn’t think so.  The bottom line is this:  If you have the cash and discipline necessary to back up your car purchase, there is no reason why you shouldn’t reap the benefits of buying your next car with a credit card.  You do the math.  It just makes cents.

PS: Contrary to popular belief, most new car dealers will let you put a hefty dollar sum of your car purchase on a credit card, so long as your are paying cash on the remaining balance.

Comments

  1. says

    I know someone who put their entire car purchase on AMEX. The dealer refused at first and the customer asked to call AMEX. The dealer immediately took the card. Apparently, if AMEX hears about their card being turned down for any purchased, they will reject that merchant for using AMEX, which then reduces their sales.

    Here via Carnival of Money Stories.

  2. says

    @Lewis Hopper:
    I have already sold our old car, but it wasn’t reliable anyway. If you are looking for a good used car in the States, my suggestion would be CarMax.com.

    @Super Saver:
    Sales games like that don’t surprise me. I know that most car dealers would prefer forms of payment in the following order:

    1. Their financing option
    2. cash
    3. 3rd party financing
    4. credit card

    Credit card companies charge the dealer a small processing fee for the service, so most of them attempt to avoid it at all costs. But, your advise on calling the credit card company makes sense. Thanks for the tip. 😉

  3. says

    You need to employ common sense from the point of car purchase. Different cars have varying premium demands. Certain Cars are more expensive to Insure than others. If therefore you had this in mind before buying a Car, you would get a car that meets your Auto requirements and is comparably cheaper to insure. You would of course need to ask people who know.

  4. Wayne says

    I disagree. It never makes sense to use a credit card for buying a car. Not only are these 0% or 1-2% introductory rates hard to find nowadays amid this “credit-crunch”, but also these “deals” are bundled with some much red tape and written with weasel-words that mostly allow the bank to do whatever they want.

    Face it, the bank is in the business to make money. Are they going to make money by lending you $20,000 at 0% interest? NO. Will they make money by hiking your interest rate to 29% because your debt-to-credit limit ratio suddenly ballooned? Youbetcha.

    This is BAD advice, people.

  5. says

    From a practical standpoint most dealerships will limit the amount you can charge towards a car. In America it is usually, between $1000 to $5000 dollars. The main reason you don’t want to do this is because most cards will charge you an lot of interest payments, much more than a car loan.

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