Should I Use a Credit Card to Pay Off my Car Loan?
Imagine yourself preparing for work then your son walks in and asks, Should I Work with a Credit Card to Pay Off my Car Loan? Everyday, hundreds of young first-time car owners wonder whether it makes sense to pay for off their car loans utilizing their credit cards. On another hand, you probably have a high-interest mortgage to pay for and you wish to proceed from your auto loan the moment possible.
Below are a few important details about using a credit card to pay for off monthly car loan installments.
Can I pay my monthly car loan with a credit card?
Yes, you can. You will need to fill in a balance transfer form given by your credit card provider. Once the balance transfer is complete, you’ll repay your auto loan using new terms given by your credit card company. Before you fill in a balance transfer application, check whether your credit card’s limit is large enough.
Why can’t I pay my car loan with a credit card?
- Some car dealerships don’t accept credit card payments because they attract high merchant fees.
- The auto loan exceeds your credit limit.
- Your credit score falls short of the requirements.
Should I use a credit card to pay off my car loan?
Yes, if you wish to enjoy the following advantages.
1. Zero interest charges for the first 18 months
Nowadays, credit card companies lure customers by offering 0% APR for the initial eighteen months. When you have significantly less than eighteen months to pay for off your auto loan, you’ll save a significant amount of cash by switching to a zero percent APR repayment plan.
As well as avoiding interest costs for eighteen months, you’ll manage to pay your monthly installments on time. Payment history accounts for at the least 35 percent of your credit score. When you pay your monthly auto loan installments promptly, your credit score improves.
2. Accumulate many reward points
Just about any credit card company runs a customer reward program to encourage continuous spending. Some companies offer you periods of discounted interest rates if you accumulate reward points to a specified minimum. You can even benefit from an increased credit limit and this directly improves your credit rating.
3. Spend less by eliminating GAP monthly premiums
As soon as your credit lender approves your auto loan application, you spend a regular installment that is made up of special insurance premium. Since you’re making a credit purchase, your vehicle dealership or bank charges a Guaranteed Auto Protection premium (GAP). In case a consumer defaults, the creditor can recoup the main outstanding payments from the GAP premiums.
Did you realize that GAP premiums take into account at the least 10 percent of your auto loan monthly installment? When you apply for a balance transfer, the credit card company won’t charge you GAP premiums.
How to pay an auto loan with a credit card
- Ask whether your vehicle dealership or credit lender allow balance transfers. If yes, request for a credit card applicatoin form.
- Pay the fee necessary to initiate the balance transfer.
- Check whether your credit card company has paid your auto loan.
What are the disadvantages of using my credit card to pay off an auto loan?
1. Only favors car buyers who have less than 18 monthly installments in their auto loan
Charge card companies charge 0 % APR for the initial eighteen months you utilize your credit card. When you have significantly less than 18 monthly installments to clear, you’ll save a whole lot because that you don’t pay interest costs for 18 months.
What happens following the promotional period expires? The credit card resumes with their normal interest rates ranging from 16-19 percent. This is really more than your auto loan interest charges. In the event that you skip payments through the promotional period, your monthly installments is going to be costly.
2. Waters down your payment history score
In the credit world, secured debts attract more respect than unsecured credit. Creditors usually pay more awareness of your mortgages and secured bank loans’payment history than they do to your credit card history.
When you transfer your auto loan to your credit card, you switch from secured to unsecured debt. This shift will remain contained in your credit score for at the least two years.
3. Exceeds the 30 % credit limit rule
Financial coaches advise individuals to utilize 30 percent of the credit limit. Doing it will help a borrower to repay their loans promptly and boost their credit score significantly. If your credit limit is $1,000, your monthly credit card expenditure shouldn’t exceed $300.
When you request a balance transfer, the auto loan balance definitely exceeds 30 % of your credit limit. It might oftimes be 80-100 % of your credit limit and this directly affects your credit score. Even though you pay your monthly installments promptly, your credit score won’t improve much.
4. Costly migration process
Auto loans make their profits through the monthly installments you spend through the repayment period. It’s in their utmost interest to make sure you stick with their plan from your first installment until the final one. So, once you request to transfer your auto loan to your credit card, expect some resistance.
Some auto loan lenders require the buyer to pay for the balance transfer fee and one month’s installment in cash. The total amount transfer fee is usually 5 %of your auto loan balance. If you don’t have enough money at hand, you should have to sell off a couple of belongings to afford your balance transfer costs.
5. Skipping a few payments attracts harsh consequences
Credit cards are a questionnaire of unsecured debt. Since credit card lenders want to minimize the risk of default, they employ strict controls to make sure you spend your debt on time. In the event that you skip a regular payment, you should have to pay for late payment fines that probably add up to 10 percent of your outstanding credit.
In the event that you skip a second payment, the credit card company immediately reports you to credit reference bureaus. Auto loan lenders are far more approachable and are less inclined to report you if you manage to create partial payments.
Should I pay my auto loan payments using a credit card?
While it could seem rational to transfer your auto loan balance to a zero percent credit card, you lose credit score points once you switch from a secured to an unsecured debt. Plus, your credit score takes another dip whenever your auto loan exceeds 30 % of your credit limit.
If you want help on auto loan refinancing, you can always call Complete Auto Loans.