June 25th, 2007 @ 3:59 pm by: Marc
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.
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9 Comments
July 2nd, 2007 at 1:49 am
[…] and Angel presents When Buying a Car with a Credit Card Makes Cents posted at Marc and Angel, saying, “We just purchased a brand new car (Honda Accord Coupe […]
July 2nd, 2007 at 3:14 am
[…] and Angel presents When Buying a Car with a Credit Card Makes Cents posted at Marc and Angel. Marc and Angel say, “We just purchased a brand new car (Honda […]
July 2nd, 2007 at 9:05 am
[…] and Angel share their story about how there are times when it makes financial sense to buy a car with a credit card. We did this with our son’s off-road motorcycle and it worked well for us as […]
July 2nd, 2007 at 4:35 pm
Hi
Im moving to the States and need a good solid Car.
Can you help
Lewis.
July 4th, 2007 at 2:00 am
[…] and Angel presents When Buying a Car with a Credit Card Makes Cents posted at Marc and Angel. They just purchased a brand new car (Honda Accord Coupe EX-L) on a credit […]
July 4th, 2007 at 9:32 am
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.
July 5th, 2007 at 1:14 pm
@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.
July 10th, 2007 at 7:20 pm
[…] Marc and Angel explains When Buying a Car With a Credit Card Makes Cents. […]
July 13th, 2007 at 10:34 am
[…] and Angel presents When Buying a Car with a Credit Card Makes Cents posted at Marc and Angel, saying, “We just purchased a brand new car (Honda Accord Coupe […]
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