Paying your car payment with a credit card can be a convenient option, allowing you to earn rewards on purchases and giving you more time to pay if you can’t cover the full amount when your payment is due. However, there are also some potential drawbacks, including higher interest charges if you carry a balance.
Benefits of Paying Car Payments with a Credit Card
Here are some of the potential benefits of using a credit card to pay your car payment:
- Earn rewards: Many credit cards offer robust rewards programs, allowing you to earn 1-5% back on all purchases. By charging your $300 monthly car payment to a card earning 2% back, you’d earn $6 per month or $72 per year.
- Float your payment: Credit cards give you anywhere from 21-56 days after the statement closes to pay your bill in full. If your car payment is due on the 5th but your credit card statement doesn’t close until the 20th, you’d have an extra 15+ days to come up with the funds.
- Manage cash flow: Putting a large recurring bill like a car payment on a credit card can help manage your cash flow by spreading out when the money leaves your checking account.
- Build credit: Making on-time payments can help build your credit history, which is beneficial for qualifying for loans and other accounts in the future.
Drawbacks of Paying with a Credit Card
However, there are also some potential risks and drawbacks to be aware of:
- Higher interest charges: Credit cards have much higher interest rates than auto loans. If you carry a balance, the interest can quickly eclipse any rewards you earn.
- Possibility of late fees: If you miss making your credit card payment by the due date, you’ll incur costly late fees. This could also ding your credit.
- Overspending risk: Having a car payment on a credit card may encourage you to spend more than you otherwise would, getting you into debt.
- Credit utilization: A high credit card balance relative to your limits will increase your utilization rate, which can lower your credit scores.
Other Options for Paying Your Auto Loan
Beyond just credit cards, here are some other options for paying your auto loan each month:
- Automatic bank drafts: Most lenders let you set up automatic monthly payments directly from your checking account. This ensures your payment is made on time without you having to do anything.
- Online bill pay: You may be able to use your bank’s online bill pay system to schedule one-time or recurring monthly payments. This also saves time by automating payments.
- Payroll deduction: Some lenders partner with employers to deduct your monthly payment pre-tax from each paycheck. This can make budgeting easier.
- Money orders: You can purchase money orders as an alternative to paying by check. Some lenders may charge a processing fee.
- Cashier’s checks: Obtaining a cashier’s check from your bank provides a guaranteed form of payment when mailing in payments.
- Cash: Most lenders will accept cash payments in their branches, though you usually have to pay in person.
Factors to Consider When Paying with a Credit Card
If you do decide to put your monthly auto loan payment on a credit card, here are some important factors to consider:
- Interest rates: Opt for a low interest card, as rates of 18% or higher can cause balances to snowball.
- Rewards: Pick a card that earns at least 2% back to offset interest charges.
- Limits: Don’t max out your card as high utilization can hurt credit scores.
- Payment dates: Choose a card with a due date after your auto loan due date.
- Late fees: Set payment reminders so you never miss the credit card due date.
- Budgeting: Have a plan to pay off your balance each month to avoid interest charges.
Pros and Cons of Paying Car Payments with a Credit Card
Here is a quick overview of some of the key pros and cons to weigh when deciding if you should pay your auto loan with a credit card:
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The Bottom Line
At the end of the day, whether or not it makes sense to pay your auto loan with a credit card depends largely on your financial situation.
If you have a healthy emergency fund, pay off your balance each month, and use rewards responsibly, a credit card can be a convenient funding option. But if you struggle with debt or don’t want to risk missed payments and interest charges, sticking with more traditional payment methods is the smarter approach.
Always compare the costs and benefits and have a backup plan or savings buffer when using credit cards. Make payments on time, don’t overspend, and use rewards wisely. With proper planning, you can take advantage of credit card perks without taking on unhealthy levels of debt or putting your vehicle loan at risk.
Here are some final tips when paying auto loans with credit cards:
- Check if your lender accepts credit cards without a fee
- Pick a card with an appropriate credit limit
- Automate payments to avoid missed due dates
- Pay your balance off each billing cycle
- Use a budget to control spending
- Have a backup payment plan just in case
- Read card statements closely every month
- Contact your lender if you ever anticipate issues with making payments
Following these tips will make it more likely you can manage payments and avoid unwanted fees, interest charges, and car repossession. Evaluate your finances honestly before committing to put your auto loan on a card.