If you are looking to buy a car, you may consider pondering over a couple of funding options. However, some of you may try to finance it with a credit card. It may seem the most convenient option, and you can avoid paying interest if you settle the debt within the interest-free period, but sometimes things are not as simple as they seem.

First off, you need to understand the fact that not all dealers accept credit card, and if they do, they will accept it only for funding a very small amount of the purchase price. Rest you will have to fund with other funding sources.

Before you give unexpected surprises to the dealer at the time of purchase, you should know beforehand whether they accept payments with credit cards. What other alternatives they do have, and what method works for you the best. This blog discusses when it makes sense to fund your car with a credit card and what are its pros and cons.

When does it make sense to fund your car with a credit card?

Even if your car dealer does not have a problem funding a portion of your car’s purchase, it may not always be a good idea to fund it with your credit card. This is because you will have to pay off the whole of the balance at once according to your credit card issuer’s policy.

Further, the rest of the amount you will have to fund with other funding alternatives like auto loans. Of course, it is not easy for you to manage both the whole settlement of your credit card debt and the monthly car loan payments.

If you funded the car with an auto loan, you would be able to manage small monthly payments. Credit may be the best option if you have money to almost pay for your car. As far as it is about the gap, you can fund that with a credit card.

Another suitable situation for funding a car with a credit card is when you are out of work and need it urgently. Car finance for the unemployed is not generally available with all lenders. If you have got a job and have an offer letter, you can seek this option and pay your first instalment with your credit card, but note that you must be able to settle the whole balance as soon as you receive your first paycheque.

Instead of funding the purchase price of your car, you can fund a down payment with your credit card. You have to arrange a down payment to buy your car, and if you have fallen short of your savings, you can fund the down payment with your credit card. If your credit card has a 0% interest-free deal, you can escape paying interest if you pay off the balance on time.

What is the best alternative?

There are three other alternatives that you can use: personal loans, hire purchase and personal contract purchase. All the funding sources are not the same. A car dealer offers to hire purchase and personal contract purchase, and they can prove to be expensive in the long run.

You will be paying a lot of money in interest if you sign the hire purchase contract. If you sign the personal contract purchase, you will be paying interest only until the end of the term and then make a large balloon payment to get the title transferred in your own name or otherwise, you can return.

This kind of contract is more expensive than a hire purchase because you may have already paid the purchase value of the car in the form of monthly interest instalments even if you decide to return it. This is why the best option is a personal loan.

You can borrow money from a lender and use that to pay for your car. Then you will be only responsible for paying your lender. You can get money at affordable interest rates because your car will be secured against the debt, and you will get the title of the car when you make the final payment.

The takeaway

Financing your car with a credit card may not be a good option – in fact, a feasible option. There are a few situations when you can fund it with your credit card.

You should look for another alternative like an auto loan. This is more manageable than other debts, even during financial ups and downs. For instance, you lose your job, and you are to take out loans for the unemployed in the UK. Analyse your financial security before financing a car.