post written by: Marc Chernoff
When Buying a Car with a Credit Card Makes Cents
We 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.