Have you considered buying a car with a credit card?

To begin, We are not referring to usig your credit card for the down payment, and paying the balance with a personal loan. We are talking about buying a car outright with your credit card. Would that be a sound move? Credit cards offer both opportunities and challenges that cannot be dismissed.

First, one “pro” to paying for your car using your credit card is the loan is unsecured. If a misfortune should strike, the bank cannot repossess your vehicle. If you don’t make your minimum credit card payments, you are the sole proprietor of your vehicle. You never have to worry about your car disappearing in the middle of the night…unless it is stolen, of course.

So unsecured is better, to buy your next car, right?

Sometimes. We must keep in mind the higher credit card interest rate. Credit cards almost always charge higher rates than the interest rate of a typical personal loan , such as those most people use to pay for a new car. The reason for this is that the card issuers don’t have a claim to your purchases if you fail to pay. The banks have to ensure they make a profit. Just for the record, you should always make at least the minimum credit card payments or watch your credit score drop like a rock.

Second, you don’t have to scramble through the barrage of hoops that car loan applications typically demand. If you’ve ever had to answer something like “Describe the formative years of your DNA.”, the appeal of an unsecured loan is irreplaceable. Being able to avoid the stressful forms is particularly great news for people just starting a new job or those that are self-employed without a steady income. You are awesome in real life – but you might not look so great on paper. When paying by credit card, you don’t have to worry about going through all the steps, only to be turned down at the end.

While less paperwork and not having to apply for a typical loan is appealing, there is a cost to this convenience. You at the end of the month you will still face a hefty balance owing – which is when the shocking rate of interest kicks in (and maybe kicks you in).

One way around the interest-rate quagmire, if to quickly transfer your new-found debt to a “zero interest” credit card. These cards give new users a grace period, typically from six to eighteen months, before interest starts being charged. Pay down the balance as fast as a piano in free-fall, and you might end up paying less than you would have with a standard car loan.

Third – and this might just be the best reason to use your credit card to buy a car – your monthly payment remains flexible. You can pay as much or as little as you want in any given month, as long as you pay more than the minimum monthly payment. That is usually a paltry one percent depending on your card’s program. By way of a practical example, on a $25,000 car, the minimum payment would be $250 per month.

It will surely happen that there will be months when you may want to pay only the minimum, which will be much less than with a typical car loan. You might need this financial wiggle room to pay high winter heating bills or if a roof collapses or the basement is flooded.or if income is suddenly reduced. There will also likely be months when you find you have a little more money – like when the income tax refund arrives – and you can pay larger amounts to reduce the balance faster. With a credit card, it is completely up to you; that’s the advantage.

Fourth, your credit card may offer purchase rewards; making a car purchase with your card might earn you huge wads of cash – something a car loan won’t do.

What you should keep in mind with rewards card programs is that they usually have higher interest rates and may have annual fees that may result in higher costs than the reward offered in the purchase. Do your homework before signing up for any credit card. Cash-back could even be used to pay down some of the car price immediately.

To recap, make sure to crunch the numbers and determine which way you will come out the winner. In most cases, that means weighing high credit card interest rates against flexibility and ease of purchase – maybe even the ability to purchase.

However you decide to finance your new car purchase, be sure to keep in one important code-of-conduct when speaking of debt: getting into debt is a lot easier than getting out of it. Never take on more debt thanyou can manage. Carefully determine what you can afford before signing for any car purchase.