For some circumstances, a credit card could be the cheapest way to pay for a new car. Plus, as with any purchase on a credit card for something worth between £100 and £30,000, you’ll also have Section 75 protection. This protection means that the credit card company is jointly liable with the seller, so if the car is faulty you can approach the credit card company to put it right.
There are many cards that could be used to buy a car, but it’s usually a choice between a money transfer card, a purchase card or a low rate card. A money transfer card allows you transfer cash to your current account, so you can pay cash in places that won’t accept a credit card. As you won’t be paying for the car with the card directly, you won’t be covered the Section 75 protection mentioned above.
A purchase or a low rate card can be used to pay for the car directly. The money doesn’t need to go to your current account first. However, you’ll need to make sure that your credit limit is enough to cover the cost, and that the dealer accepts card payments. Your credit history is taken into account when card companies calculate how much they’ll lend you. So the better your credit history, the more likely you are to have a larger limit. Even if you’ve already got the cash in the bank, some people use a credit card for large purchases, purely for the Section 75 protection, then pay off the balance in full before any interest is incurred.
It’s important to note that if you do choose to buy a car with a credit card, you need to stick to the repayment terms. Otherwise it could cost you considerably more. If you’ve chosen to use a card with a zero percent period, once the period ends the rates rise considerably and the rate becomes variable. Paying off the balance before the zero percent period ends means you won’t have to worry about this. If you only make the minimum payments it could take a considerably long time to pay for the car, so it’s worth being disciplined and ensuring you pay the balance as soon as you can.