What do you do if you need a new vehicle now, but you’re totally strapped for cash? Your first instinct could be to slap your credit card down to make the down payment on the car loan. This seems like a great idea—but, is it? Well, there are certainly pros and cons to putting your car loan down payment on a credit card.
You Could Get Rewards. These days, a lot of credit cards come with cash back or other perks. You typically get a certain percentage of rewards per every dollar you spend. So, if your car loan down payment is a significant amount of money, you could actually end up getting a fairly big chunk in rewards credited back to your account.
You Can Use It Immediately. Using your credit card for a down payment means you can walk in today and make that payment. There’s no waiting to hear back about other loans or having to go get a money order or other form of payment.
You Could End Up Paying A Lot Of Interest. Chances are, you don’t have a low-interest rate on your credit card. So, unless you can pay off your balance by the time it is due at the end of your billing cycle, you’re likely going to accrue quite a bit of interest. And, if you take several months—or possibly even years—to pay it off, that will really add up and you could end up paying almost the equivalent of the price of your car in interest!
The Dealership May Not Allow You To Pay With A Credit Card. Some automotive dealerships, especially some smaller independent ones, won’t actually accept credit cards as a down payment. They are only equipped to collect cash, cheques, or money orders.
And, occasionally, you will find a dealership who does accept credit card payments, but they charge a merchant fee for the privilege of doing so. This fee varies significantly but should factor into your decision on if it’s truly worth it to use your credit card for your auto down payment.
So, Is Putting A Car Loan Down Payment On A Credit Card Ever A Good Idea?
There are a few occasions when it could actually be a good idea to put your car loan down payment on a credit card. Provided the auto dealership allows you to, that is.
You Will Have The Money To Pay It Off Very Soon. This is the big one! If you are guaranteed to receive enough money to pay off the entire amount by the end of the billing cycle, then you won’t accumulate any interest on your payment. But, if it will be a month or two before you’ll be receiving enough money to pay off your payment, it may still be worth it to put that down payment on your credit card (if you have a low-interest rate). The interest accrued during that time may be low enough to justify it. Do some calculations before you commit though.
Your Rewards Will Make It Worth It. Maybe you have a credit card which offers great rewards, or you make your payment during the time of bonus rewards or something similar. You could possibly end up with quite a few rewards that you will use, or cash back that will go back onto your card or into your bank account. So, if you are going to receive $200 in valuable rewards, even if you accrue $100 in interest over a few months, this still makes putting the purchase on your credit card worth it.
You do need to do a lot of calculations to figure out how much interest you will have to pay and how many rewards you will ultimately receive to know if this is truly worth it. Really, you should consider these rewards and cashback to be a bonus, but you want to break even at a minimum to make it even slightly worth it.
There is one more caveat with this one. Make sure you will be receiving rewards you will actually use. Cashback, or points to use towards groceries or things you buy often are definitely rewards you will reap. However, if they are for air travel or something else you find you’re not able to use, then it’s best not to factor those rewards into your ultimate decision.
You Get A Great Promotional Interest Rate. Maybe you have just opened your account and have six months at zero interest, or maybe you have just negotiated a very low rate on your card. This may be a good time to put your car loan down payment onto your credit card.
The key here is to still have a plan in place to pay off your balance in full as soon as possible. Because, at the end of the promotional period, your interest rate will likely skyrocket. And, keep in mind that even if you have a lower interest rate, it’s still accumulating money onto what you owe. This can be a very dangerous cycle.
So, as you can see, putting a car loan down payment onto a credit card is truly only a good idea if you will have cash in hand to pay it off quickly.
If you’re strapped for money for a down payment, it’s likely a much better idea to get a no or low-interest car loan in order to purchase that vehicle you desperately need. When you work with LendingArch, you can be assured you will receive the best rate possible. We work with lenders across the country to ensure you get the best car loan rates in Canada.
And, the good news is that you can get a loan even if you have bad credit! So, no matter what kind of loan you want—bad credit car loans, refinance car loans, or any type of auto loans in Canada, you can trust LendingArch to find you the best rate. Applying online is quick and easy.