Fantastic Plastic: Should you put a car on a credit card?

By Rosie Earl
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What are the pros and cons of putting your vehicle purchase on plastic?

When buying a new set of wheels, many people fail to consider paying on credit card.

If you’re geeky about your finances and super organised, you could find paying for your car with a card is a cheap and savvy option. Kick off by finding out if the dealership you want to buy for accepts credit cards, checking how much credit limit is available to you on an interest-free card and making sure you can comfortably afford at least the minimum payments on the card until you’ve paid it off.

Scoping this out before you find your new car will reduce the financial headache when it comes to paying up. It would be embarrassing to sign on the dotted line, only to find out the dealership won’t take your card. Money Saving Expert has a handy table from 2016 of major dealerships in the UK, whether they accept card, and if they charge you to use one.

There are a number of great reasons to buy your car with a credit card, if that option is available to you.

An interesting thing… Interest!

Pro - Many credit card companies offer long periods, even up to 36 months, of interest-free on new purchases and/or balance transfers. This means you could be on the road without paying a penny of interest. If you get to the end of the free term, you can then look at transferring the balance to a new card that has 0% interest - find out more about that here. A pretty sweet deal compared to a personal loan of around 5% APR, that could end up costing you approximately £800 in interest over the life of the loan. The credit card will only cost you the balance transfer fee (usually 2-3% of the balance), so that’s a great saving already.

 

Top tip -set yourself a calendar alert a month before the interest-free period is due to expire to remind you to look into a balance transfer if you have not already paid the card off. I always do this, as I know in two to three years, this will have completely slipped my mind.

 

Con - This plan relies on you either being able to pay off the debt before the interest-free period runs out or being able to transfer the balance to a new card, and unless you have a crystal ball, there is no guarantee of either of these. If you can’t pay it off, or have a credit score disaster and you can’t get a new card, you could find yourself on an inflated interest rate once the period is over, usually around 18-19%. Want to know more about a happy credit score? Find out here.

Reaping the Rewards

Pro - Some credit cards offer rewards when you spend. At the time of writing, USwitch shows cards offering:

Cashback

Airmiles

Store Card points

Free Uber journeys

Hotel stays

This can be a fantastic option if you travel a lot, or regularly shop at the same store. Getting money back as vouchers, airmiles or real money can score you some fantastic treats.

 

Con - You will normally have to choose between rewards and 0% interest. Reward cards usually don’t offer 0% interest, or will only do it for a short time before they hike up the interest rate. You’ll need to weigh up what’s best for you before you commit to a card, do the rewards outweigh the interest savings? You can use an online interest calculator* to help you.

Perfect Protection

Pro - Good news! If you pay for any part of a purchase between £100 and £30,000 on a credit card (even 1p), you will be eligible for Section 75 protection. This means that if you’re sold a pup, or you don’t get the service you were promised, you can go to the credit card company for compensation.

They can also hook you up with a free ombudsman service if there’s a dispute with the seller, and they will look at whether you as the customer were treated fairly as well as what has happened in the eyes of the law. This is exclusive protection for credit card customers that you don’t get with any other form of payment.

Pro - In terms of protection, there’s no real negatives, so here’s another pro - remember, if any part of the purchase is made by credit card, you are covered by Section 75. This means that if you can’t get a credit limit high enough to pay for the whole vehicle, you can still benefit from the cover if you pay your deposit by card. No one wants to think that something will go wrong with a car purchase, but if it does, this is a quick and easy way to be protected.

Top Takeaway

- Prepare in advance to find out what credit card options are available to you

- Make sure you can pay the card off before any interest free period expires

- Weigh up whether rewards or 0% interest are best for you

- Consider the benefit of Section 75 cover when you pay for even part of your car on credit card

*Please note: this calculator is hosted by an external site and is for guidance only. Giffgaff Money holds no responsibility for its accuracy.

Author bio: Rosie is a massive geek who loves anything Hello Kitty or penguin related. She writes every day and wants to be Caitlin Moran when she grows up. If she was an animal, she would be a baby dragon (with a solid background in finance). The Sorting Hat would have put her in Hufflepuff, and she is cool with that.

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Representative example for a loan of £4,000 for 24 months at an interest rate of 15.5% APR fixed. In this example the total amount payable (including interest and fees) would be £4633.57 and your monthly repayments would be £193.07.

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