Your credit card can be a convenient option for purchases, but should it be used for buying a car? Chris Mixter's experience with his 2018 Honda Odyssey serves as a cautionary tale. In the pursuit of rewards points, he incurred $45k in debt, highlighting essential lessons about credit card usage for significant purchases.
Can You Really Buy a Car with a Credit Card?
Many might wonder: can you really buy a car with a credit card? The answer is yes, but it comes with caveats. According to Market Watch, most dealerships prefer cash payments because of the processing fees associated with credit card transactions. If they do accept credit cards, expect them to charge surcharges, which can make using a credit card for this kind of big-ticket purchase less financially sensible.
Chris Mixter's Honda Odyssey Purchase Experience
Chris Mixter had previously enjoyed using his Chase United MileagePlus Explorer credit card for various purchases, which allowed him to earn reward points for trips, including vacations to Aruba and Disney World. So, when it came to purchasing his family's new minivan, Mixter thought it was a good idea to charge the entire amount to his card, assuming that the reward points would pay off in the long run. He managed to find a dealership willing to process the transaction without fees, which made the choice seem convenient.
While he met initial success in buying his 2018 Honda Odyssey, the reality of high interest rates on credit cards began haunting him. Chris received his credit limit increase from Chase, swiped his card, and walked away with his new vehicle. However, the looming question remained: what would happen with his credit card bill?
The Hidden Costs of Carrying High Credit Card Debt
Upon reflection, the pressing issue with using a credit card to finance a significant purchase like a car was its potential for high interest. The average loan rate for a new car sits around 6.84%, whereas using credit cards can subject borrowers to an APR ranging from 16.99% to 23.99%. For Mixter’s $45,000 Honda minivan, if he faced a 24% APR, the interest alone could balloon to approximately $10,800 after the first year. This situation quickly transitions from manageable to overwhelming.
Financial advisors universally recommend never placing any item on a credit card that you cannot pay off in full the following month. Doing so optimizes your credit health and minimizes excessive interest payments. Mixter knew this best practice but hoped to offset his credit card balance with a 0% interest car loan—which unfortunately left him without options once he drove off the dealership lot. His window to negotiate new traditional financing was closed for good.
Finding Solutions in a Credit Card Crisis
In a state of panic, Mixter sought a workaround to his burgeoning debt. He turned to balance transfer credit cards, opening three accounts that promised 0% APR for an introductory grace period. This strategic move provided him with 14 months to pay off his Chase United MileagePlus Explorer credit card debt without incurring additional interest. While this approach could provide temporary relief, the underlying question remains: was it really worth it?
Best Car Purchase Methods: What to Consider
Mixter’s experience sheds light on several critical factors to consider when contemplating the best car purchase methods. While using a credit card can accumulate points, the trade-offs can often outweigh the benefits
- Interest Rates: Compare standard auto loan rates with credit card rates to evaluate the true cost of your purchase.
- Total Costs: Calculate the total payable over the life of the debt, including any potential fees.
- Negotiation: Investigate whether the dealership can negotiate credit card fees; many aspects of the car-buying process are subject to discussion.
- Financial Health: Weigh the risks of high-interest debt against the reward points being amassed. Only put items on a credit card if they can be cleared promptly.
Lessons Learned and Expert Advice
Matt Schulz, a senior industry expert at CreditCards.com, sums up the complexities of financing a vehicle through credit by stating, “It might end up being more hassle than it’s worth.” He emphasizes the importance of financial foresight, suggesting that buyers reevaluate their approach to earning points while minimizing debt mishaps. For instance, if Mixter had chosen a card that offered higher point rewards, the outcome might have been different.
Is the allure of points worth the risk of incurring significant debt? Not many financial advisors would advocate for buying a car entirely with a credit card. Risky spending behavior like this can lead to crippling financial consequences, so it's vital to inspect every angle before proceeding with substantial purchases.
In Summary
The world of credit cards can be enticing, especially when rewards are involved. However, Chris Mixter’s Honda Odyssey purchase experience should sound alarms for anyone contemplating buying a car with a credit card. Assessing the nuances of credit card debt, interest rates, and the total costs associated with significant purchases ensures a more informed decision. By taking the time to explore traditional loans and weigh their benefits, consumers can avoid the perilous pitfall of high debt while making one of the most substantial investments in their lives.