Car Payments
In times of economic downturn, when uncertainty prevails with many consumers, it often takes more creative methods to fund a purchase than just a traditional loan. For purchasing an absolute necessity, such as a car, sometimes a buyer has to look to their credit cards for the money they need.
The basic differences in the types of loans should be understood. A traditional auto loan from a finance company is a secured loan. This means the loan is backed up by the physical ownership of the car. These loans generally have a fixed interest rate that stays the same throughout the life of the loan. If the borrower defaults under the conditions of the loan, the finance company may have the auto repossessed since it is the security for the loan. The car is then sold by the finance company and any deficiency in collection is often charged to the borrower.
An auto purchase with a credit card is an unsecured loan, and the car is not security for the loan. The interest on a credit card loan for a car may go up as the interest on most credit cards is variable. The advantage to this type loan is if a borrower already has the credit card, they are virtually assured of the loan up to the limit of the card. In the case of a car loan with a credit card, the credit card payment becomes the car payments for the borrower.
If possible it is best to use a card that has some history of consistent payments. When considering cards, many, such as the Chase Freedom Visa card have benefits of use such as reward points or cash back bonuses that accumulate as purchases are made. A borrower should also look for advantages such as promotional financing and reasonable interest rates.
Another consideration is whether after a car is purchased through a traditional auto loan, can you then make your car payments on a credit card? The answer is generally yes. Most auto finance companies or banks allow for borrowers to make their payments by credit card if necessary. And these payments are generally treated as purchases by credit card companies.
Just as in the case of buying a car with a credit card, using a card with numerous purchase advantages is important if one is available. And in this case, where a borrower is paying traditional auto loan payments only, it is critical to confirm with their card company that the payments will not be considered cash advances. If that were the case, the payments would inevitably carry a much higher interest rate than a regular purchase.
When used with care and consideration of all the variables, credit cards can be used successfully to make auto loans and car payments.