You bought what on your credit card?!

by Kristina on May 19, 2014 · 11 comments

Car

Good morning Dinks. Yesterday morning I was listening to the radio while I was taking my shower, this is rare for me because I actually hate listening to the radio.  I prefer to listen to CDs or my iPod because I know it’s music I like and its commercial free.  That’s probably an over share but anyways now you know I was in the shower.

Would you buy a car on your credit card?

I heard a commercial for a car dealership advertising a summer sale on their entire lot.  The ad said to come on down and buy a new car for a really low price and they accept all major credit cards.  At first I wasn’t sure if I heard it right but the second time I heard the commercial I know it was true – this car dealership accepts all major credit cards.  I immediately thought to myself who would pay for a car on their credit card.  There are several purchases that I would make on my credit card, but a car is not one of them.

A car is a lot of debt

There are a couple of problems that I have with paying for a brand new car with a credit card.  First off, the interest rate on a credit card is extremely high.  I couldn’t imagine having a $17,000 debt at 18% – been there done that.  I have never paid for a car on my credit card but I have racked up several thousand of dollars in debt at a high interest rate and it’s not fun.  I wouldn’t want to go down that road again.

Secondly, a lot of car dealerships offer low or 0% interest rate on financing which is a much better option than paying interest rates in the late teens or twenties.  The cost of borrowing on a car should be as low as possible since it’s a depreciating asset.  I am the first one to say that a car is a good purchase because it’s something we use daily and it’s convenient. But I don’t want to pay a high interest rate on the purchase.

These are three purchases that I will always make on my credit card:

Hotel room booking.  As you know I love to travel.  I chose a credit card that gives me travel perks such as free upgrades and access to airport lounges.  My American Express Gold Card gives me extra points on travel expenses such as hotels and airplane tickets.  Instead of earning 1 point for every $1 spent I earn 4 points for every $1 that I can redeem later for more travel.

My next airplane ticket.  Credit cards also give extra travel insurance perks such as trip cancellation and delay or baggage insurance as well as out of country medical insurance.  This can save on the costs of having to purchase additional insurance coverage when travelling abroad.

The next night out on the town.  Some credit cards allow cardholders to earn extra cash back on restaurant purchases.  I like using my credit card for dining out at restaurants because I earn extra rewards.  It’s a small purchase that I can afford to pay off each month and it helps keep my credit score in good standing.

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{ 8 comments… read them below or add one }

1 Kathy May 19, 2014 at 8:30 am

A person could have their financing arranged through a personal loan. Then they could use the credit card to get the reward points or cash back reward, thus making the price of the car a little cheaper. Then pay off the credit card in full when the bill arrives so no interest charges were incurred.

2 Brock @cleverdude May 19, 2014 at 9:48 am

I agree, it would be crazy to put an entire car on a credit card….unless there were some extraordinary circumstances. It could be that the person wouldn’t be able to secure financing….BUT they could put a (relatively) inexpensive car on a credit card. OR someone could put the down payment of a car on a credit card (as mentioned, for rewards, etc) then pay it off immediately with the cash they had saved. Sometimes it’s about extreme need, and sometimes it’s about being creative. :)

3 J. Money May 19, 2014 at 10:40 am

Randomly enough I bought my car on a credit card too :) And even crazier – through one of those CHECKS that come along w/ your c/c statements too! Haha…

But a) It was only for $3,100 (bought a ’93 pimpin cadillac)
And b) the interest rate was only 3.4% (yeah USAA!) and I paid it off in a matter of months.

So I do agree that for most people this is a dumb move, but other – more responsible people – it can be an interesting alternative. Here’s more on the time I did this here:

http://www.budgetsaresexy.com/2008/07/i-just-bought-caddy-and-i-slapped-it-on/

4 Kristina May 19, 2014 at 12:22 pm

@J. Money – That is a pretty good rate and the amount wasn’t too much that it cost more in interest charges than the purchase price. Although if I know you like I think I do you probably paid off the car before interest was charged. Maybe?

@Brock – Yes a car is a major debt to have on a credit card. I don’t even have a credit card with a limit of $30k. My biggest limit is $5k and I’m OK with that.

@Kathy – I guess if you intend to get rewards and pay off the balance before you are charged any interest then purchasing a car on a credit card is a good idea. I couldn’t even imagine how many point you would get. A car and a few free trips…not a bad deal.

5 Dee @ Color Me Frugal May 19, 2014 at 12:24 pm

This is really funny, I had written a totally different comment and I couldn’t leave it because your website said it was too spammy! Let’s see if it lets me leave this comment.

6 Dee @ Color Me Frugal May 19, 2014 at 12:26 pm

My hubby and I tried to buy a car on our credit cards recently and the dealership wouldn’t let us! We had the money to pay cash, but we wanted to put the purchase on cc so we could earn the rewards. But the dealership didn’t want to pay service fees for all that money on credit cards, so they would only let us put $3000 on credit card and we had to use our cash for the rest. I was really bummed! Too bad we already bought the car, otherwise I might be asking you where that dealership was.

7 jp May 20, 2014 at 12:58 pm

I bought my roommate’s car on my credit card for him. He was going to pay cash (use his debit card) we went down to the bank together to check that the debit card wouldn’t be declined and to put a note on his account that he would be buying a car that afternoon. We went to the dealership – he picked the car, signed the paperwork, and the debit card was declined and of course by that time the bank was closed. So I put it on my card and he transferred cash to my account when we got home. (now, I KNEW he had the cash for it – we went to the bank together; I also knew that I had the cash myself to pay off the credit card when it came due in case something happened). I made $150 in cash rewards for helping him out. Not too bad for a Saturday afternoon.

8 Dillon May 20, 2014 at 11:16 pm

I bought a motorcycle on a credit card. I had the money sitting in the bank and charged it on my card to get the airline miles. Then I paid off my credit card when the bill came in the mail.

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