If you’re in the market for a new car, it may be easy to look at your credit card and think, ‘well, I’ve got the security I need right here’.
Of course, for some, whose limits stretch that high, or looking at paying at least partly by credit card, it may seem tempting. But there are good reasons to opt for a car loan instead. These are some of the reasons why.
Interest Costs
One of the most significant benefits of a car loan is the lower interest rate. Car loans typically have fixed, relatively low interest rates compared to the rates charged by credit cards.
Credit card interest rates are usually much higher because they are designed for short-term borrowing and smaller purchases. Financing a large expense like a car with a credit card could lead to hefty interest costs, especially if you cannot pay off the balance quickly.
Repayment Structuring
Car loans offer structured repayment terms that make it easier to plan your finances. Loan terms are usually set for a fixed period, such as three, five, or even seven years, with predictable monthly payments. This consistency allows borrowers to budget effectively and ensures the entire loan is paid off by the end of the term.
On the other hand, credit card balances do not have set repayment terms. If you only make minimum payments, you could end up carrying the debt for years while accumulating significant interest costs.
Improved Terms
Another advantage of car loans is the potential for negotiating better terms, such as lower interest rates or discounts from dealerships. Many car dealers have partnerships with financial institutions, offering competitive financing deals that are unavailable with credit cards. These promotions can even extend to zero-interest loans, albeit you should take these with a grain of salt.
Other Considerations
Assuming the dealership you are prepared to buy a car from will accept a credit card payment – and that’s no guarantee – tying up credit on your credit card for such a significant purchase could leave you with less flexibility for emergencies or other expenses if something unforeseen were to arise.
Also keep in mind, a car loan may show up on your credit report as another line of finance, but it gives you the opportunity to improve your credit score. As always, just make sure you stay on top of your repayments!
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.