Is It a Good Idea to Use a Credit Card to Buy a Car?

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Using a credit card to buy a car may seem to go against conventional financial wisdom, but it is possible to do. As with any financial transaction, there are benefits to doing so as well as reasons not to do it. Being aware of the conditions is important before deciding if this is the right move to make.

Pros of using a credit card to buy a car

While there are many warnings against abusing credit cards, there can be some advantages to using one to buy a car. It might be more helpful to use one of the checks supplied by the creditor instead of trying to use an actual card.

Possible savings – Many cards have an introductory offer of zero percent interest on purchases for a certain time period. If that card is used, the money that would have been used to buy the car can be invested in a bank certificate of deposit and then applied toward the car later, almost certainly turning a profit.

Type of loan – A credit card loan is a type that is called unsecured. Though this may sound negative, in fact it means the car is owned outright and if payments cannot be made, there is no bank to show up and repossess it.

Flexible payments – When using long-term financing to pay for a car, the monthly installments are fixed and non-negotiable later. While there will be a minimum monthly amount due on the credit card, it is not necessary to pay more than that amount. If funds become short one month, a smaller amount can be paid toward the car.

Instant approval – As long as the credit card’s limit has not be exceeded, there is no need to wait for a loan approval. This also means there are no loan forms to fill out prior to the deal.

Cons of using a credit card to buy a car

Using a credit card to purchase a vehicle does have some risks that certainly should be considered.

Longer payments – While using a credit card to finance a vehicle purchase can make the monthly payments more flexible, this often will also extend the time period for which the money will be owed. If the card is not zero, or at least low, percent, this will result in more money being paid than if a traditional loan was used.

Credit rating – Making such a large purchase on a credit card, especially a first one, can wreak havoc on a consumer’s credit rating. Agencies that determine credit scores look at how much is owed compared to the credit limit. Having too much debt can lower scores.

A credit card may be a little-used option for buying a car, but under the right circumstances it can work. For those wanting instant approval or flexible payments, using a credit card may outweigh the risks of paying more money for the car or lowering a credit score.

Melanie Lewis writes for a site that provides tips on financing a car and has a useful tool to calculate monthly repayments.


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A Guide to the New Credit Card Surcharge Fee

Many consumers have heard thatcreditcardsample retailers in 40 states can now charge their credit card customers up to a 4% surcharge, or “swipe fee” for the privilege of using plastic instead of cash and wonder how that will affect them. The reality is merchants have already been charging customers for this privilege; it is built into the fee for the merchandise. But this fee is different because it will not be reflected on the price tag and will only show up at the register.

Who Is Charging the Fees?

Discover, Visa and MasterCard are the three companies that are now allowed to charge a fee to recover the cost of the transaction. American Express did not participate in the United States District Court lawsuit filed by the other companies and will not be adding the charges. Ten states have already passed laws prohibiting these surcharges from being added to customers’ bills: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Because these fees must be charged at all corporate locations or none at all, retailers with businesses located in the ten states outlawing the charges will not be able to charge them in their location in the other 40 states.

It is likely that small, mom-and-pop businesses and online companies that deal exclusively with credit card customers will be the ones most likely to implement the fees. An expert in the field of marketing, Bret Smith, Ph.D., acknowledges that customers’ tendency to spend more when using plastic and “the cost-benefit analysis may encourage retailers to opt out of the surcharge.”

Additionally, J. Craig Shearman, National Retail Federation VP calls these warnings “propaganda” and states that “(m)erchants have no desire to surcharge and no plans to surcharge.”

How to Dodge the Swipe Fees

The most obvious answer is to avoid paying with plastic. However, many times paying with cash is just not a practical option. There are benefits to whipping out your credit card for a purchase, and paying that way provides consumer protection in some instances. Since debit cards are excepted from the fee, you can always pay that way instead. Merchants imposing the fees must post a sign of their intentions on the door –but don’t have to disclose the fee amount until the transaction is initiated — so consumers can boycott these businesses if they choose.

Consumers can turn the tide of corporate policy against these new fees, as they did in 2011 when they took to the blogosphere and announced their plans to switch banks. JD Power & Associates Director of Banking Services Michael Beird states that two-thirds of people who say they will switch banks follow through. A recent study shows that 65% of Americans won’t pay a surcharge even if it is small. This could indicate a potential blacklist against merchants who decide to pass on this extra charge to customers, and could possibly cause them to rethink their position on these fees. Mitch Goldstone, a lead plaintiff in the antitrust case that spawned these fees now isn’t going to pass the costs on to his customers. Instead, he plans to use it as “leverage against the credit card companies.”

Pay to Play or Say Nay?

Ultimately, the power rests with the consumer. Each individual can decide for himself whether the convenience of using plastic online and at smaller merchants outweighs the imposition of paying a surcharge for the privilege. Retailers without customers won’t stay open long, so if you feel strongly about the issue, voice your concerns directly to the merchant to let him know why his customer is headed out the door.

Chase Sagum is a blogger covering Financial topics specifically Credit Repair, around the web.


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Home Equity Loans as Credit Card Alternative

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When homeowners are in need of extra money, a few different options may run through their mind in regards of how to obtain it. Homeowners have the option of refinancing their home or take out a home equity loan or a home equity line of credit, or borrowing money off of their credit cards. The important question in this scenario is what option is best for the homeowner’s particular needs, as well as how much equity one has in their home. If you are looking for a way to obtain extra funds for home repair, a family vacation, or are simply in need of extra money in order to handle daily expenses and give yourself a bit of a financial cushion, it is always a good idea to weigh out all options in front of you in order to make an informed decision that will work best to suit your financial goals.

Is a Home Equity Loan Plausible for you?

Home equity loans are a good choice for homeowners with a fair amount of equity in their home. If you have around $200,000 for example, taking out an equity loan of $50,00 or less is definitely plausible, as long as your credit is solid and you can prove that your current income would allow for timely monthly loan payments. Cash out refinancing is also a good idea for homeowners that are looking for a lump sum of cash to cover larger expenses like a home remodel or a new automobile.

However, when it comes to cash out refinancing, it is important to take a good look at your interest rate on your current mortgage. If your interest rate is good, refinancing may raise the rate, so all you would be doing is refinancing your debt at a higher rate. The two options you want to look at as an alternative to refinancing are a home equity loan or a home equity line of credit. Bankrate.com provides an easy to understand worksheet where you can compare these two loans and make the best decision based on your financial needs.

A home equity line of credit, or HELOC, is a loan with a variable rate, and payments are usually interest-only in the beginning. Once the line of credit is paid off, you can easily renew it if need be. Alternatively, home equity loans carry a fixed rate, and typical payments are high enough to allow the borrower to pay off the loan over the course of its term.

Credit card loans should almost always be the last possible option for homeowners, as they carry a high interest rate that nine times out of ten is always higher than a home equity loan or HELOC. If you do not have a lot of equity in your home or if you have already refinanced, your only option may be a credit card loan, but it is important to note that defaulting on even one payment can result in your interest rate being raised.

Responsible Borrowing & Financial Security

In the aftermath of the economic crisis, many people are finding that they are in need of extra money, whether it be to pay off old debt, take a much needed family vacation, or make important house repairs. If you have equity in your home, you can easily obtain these funds if your credit is good and you have enough income to make timely payments.

By weighing out the pros and cons of home equity loans, home equity lines of credit, and refinancing, you will be able to make a responsible decision regarding your immediate financial needs. Your loan will give you the peace of mind that your expenses will be taken care of, and by paying off the loan according to the specific terms, your credit will remain in good standing and you will also have the opportunity to take out another loan or line of credit in the future if needed.


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The Love-Hate Relationship Between Credit Cards and Credit Scores

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It has almost become a legend but with the soaring house prices and the need for
everyone to carry a mortgage, credit ratings are of great importance. Credit cards are
the most convenient financial tools that can help a person purchase things without cash
but when they’re misused, they can soon become nasty little debt generators that will
straightaway affect your credit score.


According to recent reports, it has been found out
that there is a sizable amount of the entire population that don’t carry credit cards and
about 10% of the American households don’t have even one credit card. As credit cards
have become a part of our everyday life, there are some who feel left behind as they don’t
carry credit cards. But this is not the fact.

Deciphering the credit rating model

The credit rating model is the most important model that you have to take into account,
especially when you are in the market to take out a new line of credit. Credit cards and
credit score can be a potential indicator about whether or not the lender can be lent
money with an affordable interest rate. Credit cards play an important role in framing
your credit score but your credit score is just a part of your entire report. If your credit
cards are a significant part of your credit history, you have to make sure that you improve
your score in order to help yourself grab a loan within your means.

You need to keep your credit-debt ratio as low as possible on all your cards.
The ideal ratio would be about 30%. The cards that show the longest history of regular
payments will help in boosting your credit score. Pay off the amounts that you owe
and then cancel your credit cards that have been giving you trouble. In case you carry
a balance of more than 50% on one card, it might be a better option to split the balance
among two different cards. By putting the debt in a bigger box, you can make the
debt look smaller.

Your credit rating is something that is checked by your mortgage lender, your auto
lender and your credit card companies. Therefore, unless you maintain a
pristine credit rating, you won’t be able to help yourself with a better line of credit at an
affordable rate. When you take out a credit consolidation loan and your lender asks for
your credit report, the inquiries hurt your credit score. Therefore, you should try to avoid
too many hard inquiries while taking out new lines of credit so that they don’t hurt your
score.

Summing it all up, you need to make sure that you’re using your cards in the best way possible. Well-ordered finances will always
help you get back on track and also build your trust among lenders.


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