Credit Cards Vs. Car Loans
Why Some Consumers Are Better Off Charging Their Cards
I always used to advise people against using their credit cards for car purchases. After all, car loan interest rates are usually way less than a credit card interest rate. However, that's not always the case nowadays. If your credit is less than perfect and you've been thinking about buying a car, you may actually want to look at the interest rate of your credit cards before taking out a car loan.
Sometimes Credit Cards Make Sense
A friend of mine who has fair credit recently purchased a car. Before he signed the papers for the car loan, he told me that they were going to charge him a 19 percent interest rate. It was at that point that I said something I never thought I'd say -- I asked my friend if he had enough credit on his credit cards to buy the car that way.
Why would I advise my friend to use credit cards instead of a car loan? Because I know for a fact that one of his credit cards has an interest rate of just 12.99 percent. That's nearly half of what the car loan company wanted to charge him. While using credit cards to buy an automobile isn't always a wise decision, in his case it would be.
What You Need to Consider
If you're approved for a car loan at an interest rate of more than 5 percent more than the interest rate of your credit cards, I'd highly suggest using your credit cards to make the purchase rather than taking out the loan. This can save you hundreds of dollars.
If you don't have enough credit available, save up money to put down a bigger down payment. Then you'll be able to use your credit card with the lower interest rate.
Remember, credit cards aren't always the best way to buy a car, but in certain circumstances, it really does make sense.