The idea of paying off a car loan with a credit card might seem like a good one. After all, it’s basically free money and you won’t have to worry about being turned down by your bank when you need to borrow more money later on. But then again, what if your car breaks down or gets stolen? What if something else unexpected happens that requires emergency funds?
If you were wondering, if can you pay a car loan with a credit card or how to do so, you are in the right place.
Using your credit card to pay off a car loan isn’t always the best financial decision—but there are some situations where it can work out well for both parties involved.
The simplest answer is yes, you can pay off a car loan with a credit card, but there are a few things you need to know first.
- You’ll need to make sure that your credit card has enough available credit to cover the amount of your car loan.
- Be aware of the interest rates on both your car loan and your credit card.
- Remember that using a credit card to pay off a car loan will impact your credit score. If you’re carrying a balance on your credit card, it will show up as debt and could hurt your score.
Can I Pay Off a Car Loan with a Credit Card?
Yes, you can pay off your car loan with a credit card. But before we dive into how it works and how much you could save, let’s start with some important questions: Why would anyone want to do this? And would it be worth it?
There are several reasons why paying off your car loans using credit card points or cards in general, might be advantageous for you:
- The interest rate on the loan is higher than what the credit card offers.
- You don’t have enough money saved up to pay off the full balance of the loan within three years of buying the car (or even within five or seven).
In terms of paying off a credit card or car loan first, it’s generally better to take care of your credit card debt first, as they usually have high-interest rates.
Pros of Paying Off a Car Loan with a Credit Card
Assuming you don’t have any cash on hand to pay off your car loan so you choose to pay with a credit card, doing so can be a great way to earn rewards points or miles. If your card offers a sign-up bonus, you could earn a large number of points or miles by using this method of payment.
Therefore, paying off your car loan with a credit card can help you rack up rewards that you can use for future travel or purchases.
Another pro of using a credit card to pay off your car loan is that it can help improve your credit score. When you use a credit card and make timely payments, it shows creditors that you’re responsible for borrowing money. This can lead to lower interest rates on future loans and lines of credit.
And if you are a bit behind on both and wondering if it’s better to pay off a car loan or credit card, we suggest you first pay for the card debt you collected.
Cons of Paying Off a Car Loan with a Credit Card
There are a few downsides to using this payment method to consider before paying off your car loan with a credit card.
- You may end up paying more in interest. Credit card interest rates are often very high. This can make it difficult to pay down your balance, especially if you have a large car loan. Make sure to do the math and compare rates before deciding which option is best for you.
- It could also damage your credit score. If you use up a large portion of your credit limit by paying off your car loan, it could hurt your credit score by lowering your credit utilization ratio. This could make it harder to qualify for loans or get favorable interest rates in the future.
- There may be fees involved. Some credit card companies charge balance transfer fees when you pay off one loan with another. These fees can range from 3-5% of the total amount transferred, so be sure to factor that into your decision.
Is Paying Off a Car Loan with a Credit Card a Good Idea?
Now that we look into how to use a credit card to pay a car loan let’s discuss whether is it a good idea to do so.
The long answer is that it depends on your situation and goals. If you’re in debt and want to get out of it as quickly as possible, then this isn’t the best financial move for you right now. On the other hand, if paying off your debt quickly isn’t at the top of your list of priorities then yes. This could be an excellent money-saving option for anyone looking for more ways to save money each month without giving up any comforts or luxuries in their everyday life.
Paying a car loan using a credit card may take longer than paying off an equivalent amount using another method. This is because interest charges accrue over time even when there is no new balance being added each month.
However, many lenders do offer low monthly payments depending on how much income someone has coming in each month.
Additionally, you’ll need to have a credit card with a high enough limit to cover the balance of your loan. You’ll also need to be sure you can manage the repayments, as missing payments could lead to late fees and damage your credit score.
That said, there are some potential benefits to paying off your car loan with a card that you should not overlook. If you have a rewards card, paying a car loan with a credit card for points can be a good idea. You could also earn cash back on your purchase. And if you’re able to pay off the balance within the grace period (usually 20-30 days), you won’t accrue any interest charges.
Of course, there are also some risks involved with this whole process. If you’re unable to make the repayments, you could end up damaging your credit score and incur significant late fees.
Other Ways to Pay Off Car Loan Debt
So, by now you surely figured that you can pay a car loan by credit card, but are unsure that this is the right option for you, let’s take a look at some other options out there.
- Think of refinancing your car loan. If you have any trouble paying off the loan, going with this option can help you get lower interest payments or even better and more manageable terms.
- Look into biweekly payment plans. In case you are more financially stable, you could look into this plan in order to pay off your loan faster.
- Make a larger payment. Even if you can’t commit to a biweekly payment plan, you could make a larger payment here and there as this can be of great help as well to the overall amount owed.
Finally, remember that paying off your car loan with a credit card is only beneficial if you’re able to pay off the entire balance. Otherwise, you could end up paying more in interest than what you would have with just the car loan itself.
You could also look into getting a credit card with more favorable terms when it comes to these loan expenses.
In conclusion, if you’re in a position to pay off your car loan with a credit card, it’s worth considering. Keep in mind that it will take some time and effort to get all the details sorted out, but if you can make it happen and keep up with payments each month, you’ll be able to save yourself thousands of dollars in interest payments.
For many people, this option is the most convenient way to do it. If you want to avoid taking out another loan or paying part of your car payment in cash every month then this may be a good option for you as well. Just remember that there are some risks involved with doing so and it could take longer than anticipated before getting rid of all those loans completely. Use this article as a good guide on how to pay a car loan with a credit card, but if you need any additional help, we recommend you reach out to a financial advisor.