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Many buyers who visit Indy Car Financing ask our experts should I pay my car loan with credit card. The idea is that if you have a low-interest credit card or one with special offers for balance transfers that you could potentially save more money on interest. There are some perks associated with this method, but there can be some drawbacks, too. Let our financing professionals help you understand if you should pay off a car loan with a credit card or not.
The Pros and Cons of Paying a Car Loan with a Credit Card
If you’re thinking of transferring a car loan to your credit card, there are some benefits and drawbacks to consider.
The advantages include:
- Not having to worry about car repossession, since paying off a car loan dissolves any other company’s claim on the vehicle.
- Transferring the loan to a zero-interest credit card could mean that you end up paying less interest on the car loan overall.
The disadvantages of paying for a car loan with a credit card are:
- Transferring substantial debt to your credit card could have a significant impact on your credit rating.
- Special offers on balance transfers for credit cards with low interest rates often last for a certain amount of time, then increase to a significantly higher rate. If you’re loan amount isn’t paid off before the promotional end-date, you could pay much more interest over time.
Making Sense of Interest Rates
Depending on your credit rating and the interest rate of your car loan, making a balance transfer to a credit card with a zero-interest promotiional rate can seem like a good idea at first. For example, if you’re financing a vehicle for 24 months at a 4 percent interest rate, but you want to transfer that loan to a credit card with an 18-month grace period with no interest, you could save hundreds of dollars while also reducing your payment term by 6 months. However, if you have any money remaining on a transferred balance, you could incur a substantial penalty due to higher interest rates once the grace period ends.
The Bottom Line
Paying off one loan with another type of loan generally means that you’re searching for money that you don’t actually have. If this applies to your situation, then it could be time to reassess your finances. Instead of transferring a car loan to your credit card, you should:
- Develop a budget and stick with it.
- Log your spending habits to find out where your money goes.
- Always pay above the minimum on a loan or credit card to improve your credit score.
Ask Indy Car Financing
Whether you need a new car loan or you’re considering transferring a car loan balance to a credit card, contact Indy Car Financing at 855-468-6215 to consult with one of our financing professionals. We’ll answer any questions you might have. We can even help you secure financing regardless of your current financial history or credit score.