Buying a car with a credit card
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How would you pay for a car? A loan, finance deal or even cash might be among the first things that spring to mind, but an increasing number of people are opting to use a credit card.
While not all dealers will accept credit cards, research indicates that about one in 20 car buyers use their plastic to make the purchase.
Here, we investigate the pros and cons of using a credit card to buy a car.
Advantages of using a credit card
Perhaps the main advantage of using a credit card over another form of car finance is that you can avoid paying interest altogether by choosing a card offering 0% on purchases for an introductory period and paying it off within that time.
The best deals of this kind available at the time of writing include the Marks & Spencer Credit Card.
It is currently offering new customers 15 months at 0% on purchases, plus one M&S reward point for every 1 spent in M&S stores and every 2 spent elsewhere.
Other cards worth a look include the Tesco Clubcard Credit Card, which also gives new customers 15 months at 0% on purchases and offers Clubcard points on spending, and the Halifax All In One card, which gives you 15 months interest-free on both purchases and balance transfers (subject to a 3% balance transfer fee).
The potential for interest-free borrowing is not the only advantage of buying a new or second-hand car with a credit card, though.
Spend between 100 and 30,000, and you can relax in the knowledge that you are protected by the Consumer Credit Act 1974 should the dealer go out of business without delivering your car, for example.
Even if you already have the cash to pay for your new car, using a credit card offering rewards to make the purchase and then paying the balance off in full within the next month could prove a very savvy move.
Get something back
There are a number of reward schemes available (including the M&S and Tesco ones mentioned above), and the best one for you will depend on your individual circumstances.
If, for example, you enjoy travelling, then consider the American Express British Airways, card, which gives you one Avio or air mile for virtually every pound spent as well as 9,000 Avios if you spend 1,000 in the first three months and a free companion ticket if your spend 20,000 in a year.
If you would prefer cashback to spend on anything you wish, then take a look at the Capital One World Mastercard which offers 5% cashback in the first three months (on spending of up to 2000) and up to 1.25% thereafter.
Disadvantages of using a credit card
Not all dealerships accept cards
The main issue you are likely to face when trying to buy with a credit card is that the dealer you are buying from does not accept cards.
While many do accept cards for a certain amount of the purchase price say 2000 or 3000 they too will expect the rest of the payment in another form such as cash or a bank transfer (although they may allow you to pay the maximum twice over using two different cards).
You may therefore need to have a sizeable sum saved up, or financed by borrowing of another kind, in order to buy the vehicle.
The cost of the car could also impact whether or not you can use a credit card to pay for it because your credit limit may not be high enough.
If you are planning to use an existing credit card but your credit limit is not high enough to cover the full cost of the vehicle you want to buy, it is worth contacting the card provider to ask for it to be increased.
If the answer is no' there are a number of options open to you: If you have some savings you could use those to make up the difference.
Alternatively you if you have more than one credit card it might be possible to split the total between two cards this will depend on the dealer though.
Another option is to take a loan out to make up the difference. Be careful with this though as the most competitive rates are available on loans between 7500 and 15,000. It may not seem logical, but rates on smaller loans are actually higher. You may therefore be better taking a loan for the entire amount and not using your credit card to fund the purchase.
New card: The great unknown
If you are applying for a new credit card you will not know what credit limit you will offer until your application has been accepted so bear this in mind when you are working out the finances, otherwise you could be disappointed.
Beware the interest rate
If you plan to borrow interest-free using a 0% card, it is also worth remembering that you will face a high interest rate on anything you have failed to pay off within the 0% term.
You will, for example, pay a representative APR of 15.9% (variable) with the Marks & Spencer card, 16.9% (variable) with the Tesco card and 17.9% (variable) with the Halifax card.
The same is true of reward cards fail to clear the balance in full within a month of making the purchase and you will be hit with sky-high interest rates.
Both the American Express British Airways card and the Capital One World Mastercard charge representative APRs of 19.9% (variable).
The good news when it comes to section 75 of the Consumer Credit Act 1974, however, is that even if you only pay 100 towards the price with your plastic, the protection offered remains the same.
This article has been researched and written by whatcar.com's car insurance partner, MoneySupermarket