How can buying a car on credit card work for me?
Borrow cash (credit) at 0% Interest for years
Buy a car with a credit card
Main benefits:
- Lend money without paying interest on the amount borrowed.
- Second layer of protection (similar to a second warranty) within Section 75 of the Consumer credit act.
Up-to-date car history check
Check any car before you buy
Enter a reg number (such as WD19 VSO)
Latest history for any vehicle registered with DVLA
Things to remember about this method of buying a car
Buy a car on a credit card, and you need a sufficient credit card limit with a 0% APR for a set period, i.e. 18 months.
You must plan ahead for the whole period you will obtain credit.
You’ll pay interest if your borrowing period extends beyond the interest-free credit period.
But, you can set up a balance transfer to move the loan to a new card at 0% interest!
A car with a credit card is growing in popularity
The number of people buying a car using a credit card is on the rise. In 2018, we sold 93 cars where individuals paid at least 50% of the total balance of the car with their credit card.
One year earlier, a 50% balance credit card transaction occurred just 17 times.
Using credit cards such as Master Card or MBNA is a viable way to finance your next car without paying considerable interest.
Virgin credit cards also have some fantastic deals.
When do I buy a car with credit card?
An unsecured personal bank loan can range anywhere from £500 up to £25,000. One of the attractions of a personal loan is consistent, structured monthly payments.
You’ll know exactly how long you’ll borrow and what it’ll cost you each month. That’s a form of financial security you don’t get with plastic lending.
But generally, borrowing with the “cheapest credit cards” substantially undercuts even the cheapest loans on the market.
So it makes financial sense to use a credit card with a competitive interest rate, correct?
It depends on your reasons for accessing a loan and how much you need to borrow.
When is a loan better than a credit card to buy?
One crucial factor to consider is your credit limit, so you’ll need at least 850 out of 999 on Experian or another provider.
Most credit cards don’t lend more than £5,000.
So if you’re planning to buy a car over the value of £5,000, you may be better off looking into a bank loan, Hire Purchase (HP) or Personal Contract Hire (PCP).
But take note, paying just a percentage of your car using a credit card (at least £100), and you get the security of the Consumer Credit Act for the whole vehicle!
Planning the road ahead
If you’re planning to borrow 5k or less on credit, you will likely access up to 21 months at 0%.
This is wonderful, but it’s only applicable if you can budget to pay your credit card debt off within those 21 months.
You’ll need to be organised and balance transfers the debt to another interest-free credit card before the zero interest period expires.
Avoid the high-interest rate scenario
Falling into minimum monthly repayments, you risk paying expensive interest rates on the outstanding balance.
You can stick to minimum payments provided you pay off the total amount or balance transfer before your interest-free period expires.
Buying a car on a credit card from a dealer
Remember that this way of borrowing is helpful if the dealership offers the facility to pay via credit card.
Some car dealerships don’t. But, there’s still a route to using your credit card and beating the terms of a personal loan.
It’s just a little more complicated to do.
You’ll need a specialist money transfer credit card – more information here.
It works by transferring cash from your new interest-free card directly to your bank account. You still owe the balance to the credit card company, but you can pay for the car in cash or with your debit card.
Fees
Note, there’s usually a fee of around 3-4% to transfer the money from your card to your bank account.
And, you don’t get that valuable Consumer Credit protection authorised and regulated by the financial conduct authority. Check Financial Ombudsman for full details.
Negotiate with second-hand car dealers
If you can pay the dealer directly by credit card, you should.
They will charge you around 2.5% to pay a balance of over £500 on a credit card.
This is likely to be less than you’d pay via the specialist transfer credit card mentioned a moment ago.
Dealers profit from a sale in a variety of ways. Finance, extended warranties and even credit card fees are profit pots to the average savvy car dealership.
A secret
Traders pay around .075% as a fee to the merchant (card machine provider) each time a customer has paid by credit card. In addition, dealers quickly charge 2% and sometimes 3% interest for the privilege of using a credit card.
Most times, to can get a better deal if you ask for one.
If their standard charge is 3%, you can offer them a 1.5%
One more reason why a credit card can trump any other method of lending
Pay for £100 or more of your car on a card, and the credit card company become jointly liable with the dealer if something goes wrong with your vehicle.
This isn’t the credit provider being nice.
It’s legal protection, so you’re never in the position of paying off debt for something you didn’t receive or isn’t fit for purpose.
This is an excellent-added insurance for today’s car buyers, who often worry as much about who they’re buying the car from as the car itself.
0% Interest Credit Cards
With some research, we have found the most extended deal at the moment to be a card which gives you a debt of 0% for 36 months, and their money transfer fee is 4%.
Another card allows a money transfer of less than half that fee at just 1.94%, but you get one year less to borrow 0%, i.e. 24 months.
If you are confident you can pay the debt off within the given period or balance transfer before the 0% interest rate expires, this could be an excellent replacement for getting a personal or HP loan for the cost of the car.
A final word on using a credit card
Why not pay the deposit over the phone if the dealership won’t allow you to pay for a car with a credit card? Not everyone asks about the type of card you’re using, but we assure you that their electronic card machine (PDQ or EFTPOS terminal) will accept credit cards.
Written, published an updated by Marcus Rockey on 24th April 2023
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