If you’re looking for a way to pay your auto loan with a credit card, you may be wondering if it’s possible. It is – but there are a few things you need to know first. In this article, we’ll give you some credit card tips on how to pay your auto loan with a credit card, and we’ll also tell you about the risks involved.
How to Make a Car Payment With a Credit Card
If you’re trying to pay your auto loan with a credit card, the first thing you need to do is check with your lender. Some lenders will allow you to make a car payment with a credit card, but others won’t. If your lender does allow it, they’ll likely have specific instructions on how to do it.
Once you’ve checked with your lender, the next step is to find a credit card that will give you the best rewards for your purchase. There are a few different types of credit cards that you can use to pay your auto loan, and each has its own benefits and drawbacks.
Rewards Credit Cards
If you’re looking for a way to earn rewards while paying your auto loan, a rewards credit card is a good option. With this type of credit card, you’ll earn points or cashback on every purchase you make. You can then use those rewards to offset the cost of your loan, or you can use them for other expenses.
The downside of using a rewards credit card is that they often have higher interest rates than other types of credit cards. This means that if you carry a balance on your card, you’ll pay more in interest than you would with a different type of card.
Balance Transfer Credit Cards
Another option for paying your auto loan with a credit card is to use a balance transfer card. These cards offer 0% interest on balance transfers for a promotional period, which can be helpful if you’re trying to pay off your loan.
However, balance transfer cards often have high-interest rates on purchases as well, so you’ll want to make sure you pay off your loan before the promotional period ends. Additionally, most balance transfer cards charge a balance transfer fee, between 3% and 5% of your transfer amount. This fee will add to the cost of your loan.
If you need to make a car payment immediately and don’t have the cash, you can always take out a cash advance. With a cash advance, you’ll get a loan from your credit card issuer that you can use to pay your loan.
The downside of taking out a cash advance is that it often comes with high fees and interest rates. Additionally, cash advances can be difficult to repay, as you have no grace period, and your card issuer begins charging interest right away. On top of that, there is also a cash advance transaction fee of 3% to 5% that you have to pay.
Another option for paying your loan is to use a money transfer service, like Western Union or MoneyGram. You may pay for your loan using a credit card through Western Union and comparable money transfer firms.
However, keep in mind that your credit card provider may classify it as a cash advance. That implies you’d be charged credit card interest and cash advance costs in addition to the money transfer service’s expenses.
Pros of Making a Car Payment With a Credit Card
There are a few benefits to making a car payment with a credit card. First, you can earn rewards on your purchase if you have a rewards credit card.
Additionally, if you use a balance transfer card, you can take advantage of 0% interest for a promotional period of anywhere from 6-18 months. Of course, you’ll have to pay balance transfer fees, but the interest savings may well make it worth it.
Another benefit of paying your loan with a credit card is that it can help you build your credit. When you make on-time payments, it can help improve your credit score and credit history.
Cons of Making a Car Payment With a Credit Card
Before you make a car payment with a credit card, consider a few drawbacks. First, credit cards have high interest, so if you carry a balance on your card, you’ll pay interest twice, once on your loan and another on your credit card.
You will also eventually need to pay off the credit card debt, which will more than offset any interest you could earn on your savings account. For example, a 5% interest savings account is about as good as it gets, but this is still just a fraction of the interest rates credit card issuers charge.
Additionally, if you’re late on a payment or miss a payment entirely, you’ll likely be charged a late fee by your loan provider. And, if you’re late on a credit card payment, you’ll also be charged a late fee by your credit card issuer. Again, this can add to the cost of your loan and damage your credit score.
You also need to be aware of your credit utilization ratio. When your credit card balance exceeds 30% of your credit card limit, your credit score normally decreases. That’s fine if you’re willing to live with the temporary drop.
However, if you choose this strategy, just make sure that you will not need to apply for a credit card anytime soon. Instead, wait until your credit score improves before applying for new credit to avoid being charged exorbitant interest rates.
Paying your car loan with a credit card can be a good idea if you’re trying to earn rewards or take advantage of a promotional 0% APR period. However, there are some drawbacks to consider, like high-interest rates, fees, and the potential negative impact on your credit score.
Before you decide to pay your loan with a credit card, make sure you understand the pros and cons. And, be sure to consider all your payment options to choose the best one for you.