Nothing sounds better than having enough money to pay for a car outright. Thanks to the soaring cost of living, it never comes up as a reality. When it comes to buying a car, you have only the option of financing it. However, the good thing is that you can fund your car with various types of sources like personal loans, hire purchase and personal contract purchase. The good thing about these funding sources is bad credit is no longer a snag.
Car finance with bad credit in Ireland now comes with affordable interest rates because your car fulfils the purpose of collateral. However, note that you need to pay down a certain sum of money, called down payment before you sign the agreement. Some of you may think of using a credit card to make the down payment in case your car dealer allows you to do so, but it may not seem a good idea.
A down payment is a significant portion of your car’s value that reduces your burden on how much you owe and qualify you to get the loan at lower interest rates. Whether you are making a part or whole of the down payment with the credit card, make sure that the dealer has authorised you because they will be charged merchant fees and they would restrict the amount of funding with the card to limit the cost.
The use of credit card is advisable even if the car dealer permits you when you want to earn some rewards. However, this option does not exist when you are buying from a private party because financial institutions do not allow for it. There are a lot of other reasons that can make you feel regret after making a down payment with your credit card.
It can be painfully unpleasant
Charging a down payment for a car onto your credit card can give a nasty taste in your mouth provided you fail to pay off the whole money outright within the grace period. Note that interest rates for credit cards can be much higher than the financing option you have opted for otherwise.
Further, you will juggle with multiple payments. You will have to make two repayments every month: one on your credit card and the other on your car loan. So, do not do it if you cannot pay off the whole balance within the grace period, and if you still want to do it, make sure that your budget allows you to manage both repayments.
It will affect your credit score
Even if you pay off the whole balance of your credit card within the grace period, you will likely harm your credit file. However, it will be a temporary effect. This is because such a large amount will increase your credit utilisation ratio.
A down payment for a car is generally about 20% of the market value of the car, and it cannot be a nominal amount. A credit utilisation ratio accounts for a significant part of your credit score.
It should be under 30% to prevent your score from falling below 881. In case an emergency catches you off guard, you will end up taking out a short-term loan at a high-interest rate.
Some of the lenders may also turn down your application. It is crucial to ensure that you will have enough money to meet all of your regular expenses and unforeseen expenses after buying a car.
After the introductory period, the interest can be much higher
Charging a down payment onto your credit card can be a smart move if you have a 0% introductory period. It means you will keep paying off the balance over a certain period without paying interest.
However, you can avail yourself of this facility until the introductory period expires. Otherwise, you will end up paying interest on the remaining balance, and that will be much higher depending on your annual percentage rate.
As long as your car dealer allows you to pay a down payment using a credit card, you can do it provided you have surplus cash to pay off the balance within that grace period.
However, despite settling all dues within the grace period will lower down your credit score because of a high credit utilisation ratio. It is generally advisable that you should pay the down payment for your car in cash.
Some of you can think of taking out personal loans or other small loans in case you want to finance a part of it, but this too will not be an excellent idea.
It makes sense to pay your car’s down payment in cash because it will not add to the burden of your auto loan. However, if you still want to charge it onto your credit card, make sure that you can manage it.