Cars have their uses. In fact, in some cities having your own personal four-wheeler is a necessity. However, not everyone meets a car loan eligibility, especially when they have a low CIBIL score. If you are also facing the same problem, then you should try to improve your score and try again with a bank or another finance company. But what if that’s not an option, or you want to explore other options?
While loans are the most common option used by the people for buying cars, roughly about 5% of the people actually put it on their cards. Are there any advantages? Yes. Are there any disadvantages? Again, yes.
Let’s consider both one at a time.
Many credit card providers offer attractive benefits through promotional offers to lure the customers. One of these is zero rate of interest for purchases during a certain period. By availing this offer you can purchase a car and pay it off without paying any money for the interest. However, you must be careful- there could be hidden charges and the standard interest rate that becomes effective after the introductory could also be high. Thus, you must enquire about these things before filling out the application form for the credit card.
Cashback offers with credit cards have become extremely common. Many banks also offer other kinds of benefits during festive seasons like Diwali, etc. Thus, you can, in fact, earn some money by using your credit card for buying a car.
Most cards have the “reward points” system, according to which you earn reward points that are usually proportional to the purchase value. These points can be redeemed for cash or other items. Since you are going to buy something expensive such as a car, you can find a card that offers highest conversion rate of these points to cash.
The first thing you will realize as you will meet with the car dealerships is that not all of them accept credit cards. While many of them won’t mind having you pay a portion of the total cost with it, few of them will allow you to pay in full through that medium. In most cases, they are likely to enquire you about your car loan eligibility, which is their recommended method of financing a car.
Even if you are able to find a car dealer that will accept the payment via a card, your credit card limit may easily fall short. Even the starter models of standard cars cost Rs. 3 lakhs to Rs. 4 lakhs these days. However, most users have the limit at Rs. 2 lakhs.
If you have multiple credit cards then you can use them all to complete the cost. However, that could lead to high debt accumulation and possibly low CIBIL score.
It can be difficult to keep up with their bills but you can’t afford to miss the payments as that could lead to balances that are forwarded and grow with time. So, if you are using your credit card for buying a car you are most likely to fall behind your payments which will increase debt and it may take way longer to repay it in full in comparison to a standard car loan which is easier to manage.
With a poor credit history that the credit card option is most likely to result in, you can easily end up with a bad credit score that will affect your car loan eligibility in the future.
All in all, using a credit card for financing a car may sound like a good idea in theory. However, when it comes to cold hard numbers, then you can easily end up struggling with your finances.
Without a doubt, a good car loan is the best way to go. So, if something such as your credit score is creating a problem, you can work on that instead of resorting to your plastic money.
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