Business News Desk: We often use credit cards to meet our needs. In today’s time the use of credit cards has become quite common. With this you can easily handle expenses like shopping, paying bills and travelling. We can also buy a car by paying through credit card. If you are thinking of paying with a credit card, it may seem like a good option, especially when you have the opportunity to earn reward points. However, it is important to understand all the ins and outs of it before taking advantage of it. Let us know what things should be kept in mind before paying for the car through credit card.
Can you pay for the car in full with a credit card?
If you are thinking of making full payment for the vehicle with your credit card for reward points, then in reality it is not so easy.
booking amount
Almost all car dealerships accept credit cards for the booking amount. This amount is usually 5-10% of the total price of the vehicle. For example, if you are buying a car worth ₹10 lakh, the booking amount could be between ₹50,000 to ₹1 lakh. Companies like VW and Skoda easily accept payments up to ₹1 lakh through credit or debit cards. Whereas for some premium vehicles this amount can go up to ₹ 3-5 lakh.
In many places dealerships do not accept credit card payments.
Paying for the entire vehicle with a credit card is not easy. Most dealerships do not accept credit cards for the full price of the vehicle. The reason for this is that the dealership has to pay about 1.75% transaction fee, which affects their profits. If you use an American Express card, this fee can go up to 2.5%, which also includes tax. This is a big loss for the dealership, due to which they hesitate in taking credit card payments beyond the booking amount.
Keep these things in mind before buying a car with credit card
merchant fees
Before buying a car, make sure to check whether the dealership is charging any additional fees for credit card payment. Many dealerships charge an additional fee of 1-2% to cover their processing expenses.
car interest rate
Interest rates on credit cards are usually very high, which can be much higher than personal or vehicle loans. If you are not able to repay the entire dues on time, the interest can increase quickly. Make sure you are prepared to pay the monthly installments and decide considering the interest on the total cost of the vehicle. If you plan to pay off the balance over time, consider whether the benefits like rewards points justify the extra expense of interest.
Reward Points
A big advantage of making big purchases like a car with a credit card is that you can earn good reward points. But, for this it is very important to understand the reward structure of your credit card and calculate the potential benefits correctly.
credit card limit
Before using a credit card, make sure that your credit limit is enough to cover the cost of the vehicle. Large transactions can increase your credit utilization ratio, which can affect your credit score. If you think your utilization ratio will be high, request a credit limit increase or consider spreading payments over several months to minimize the impact.
Merchant Category Code (MCC)
MCC (Merchant Category Code) may affect your reward points rate. Some credit cards offer bonus rewards on specific spending categories, such as dining or travel. Additionally, some cards offer better reward points or benefits for specific categories. If a merchant’s MCC does not match the bonus category, you may receive fewer points than expected, reducing the full benefit of the credit card.
