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Can I pay my car loan with a credit card?

Can you pay your car loan with a credit card? Well, yes… technically you can. Most lenders won’t let you use a credit card to pay your loan directly, but you know those convenience checks your credit card company sends in the mail, encouraging you to transfer a balance? You can use one in a pinch – just be prepared to bite the bullet and pay the fees involved.

Likewise, tapping into your credit card’s cash advance limit is another way to make your car payment when cash is tight – but remember, there’s no time limit. thanks for cash advances, so the balance immediately starts racking up exorbitant interest charges. And these days, some services let you pay just about anything with a credit card, even your rent — for a fee, of course.

So no, the question is not whether you can pay your car loan with a credit card. It is if you would like.

There are cases where this could make sense. Imagine you open your mailbox and find two pieces of mail – one is your car payment and the other is a 0% APR credit card offer. When you open the two and compare them side by side, a light bulb goes out. In the perfect world, you’d switch your car loan to a 0% APR credit card, avoid interest charges, and pay off your car loan, right?

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Paying your car loan with a credit card may seem crazy, but this strategy is not so far-fetched. In fact, many people do this all the time for various reasons.

Some people do it for their savings; by paying off their expensive car loan with a card that charges 0% APR, they can save money on interest and get their car paid off faster. Others do it for flexibility; perhaps he is not satisfied with the monthly payment for his vehicle and wishes he had the option of paying more or less each month. And of course, some do it out of desperation: if money is tight for a month, it’s probably better to pay off your car loan with a credit card than to miss a payment and suffer the impact on your record. credit or risk default.

However, as with most financial strategies, there are some notable downsides to consider when paying off your car loan with a credit card. What are they? Keep reading to learn more.

The problem of paying your car loan with a credit card

While saving money is almost always a good thing, paying off your auto loan with a credit card isn’t a given. For starters, this financial move changes the nature of the loan itself. By transferring your auto loan to a credit card, you are taking a secured loan and turning it into revolving credit. On the other hand, this means that your car cannot be repossessed if you stop paying your bill. However, the simple act of shifting debt can wreak havoc on your credit score — in several ways.

For starters, credit reporting companies view revolving debt (such as credit card balances) very differently than installment loans — and not in a good way. In general, regular installment loans (like car payments, student loans, and mortgages) are better for your credit score because they add an on-time payment history to your credit report, according to Experian. Installment loans can also diversify your credit mix — a factor in your credit score — especially if you’ve used credit cards as your primary form of payment.

Another impact on your credit score could be the result of increased use of credit. By switching your car loan to a credit card, you are loading up a huge balance that didn’t exist before. Since the amount you owe on your credit cards helps determine your score, increasing your credit usage could cause your score to drop.

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Another reason you may want to refrain from charging your auto loan to a credit card is that it may not save you money in the long run. Scoring a 0% APR offer and transferring your balance can save you money in the short term, but what happens when your introductory APR resets? If you don’t have a plan to pay off your car during your credit card’s 0% APR introductory period, you could end up paying huge interest payments every month – far higher than the car loan. typical.

Another important disadvantage to consider is the precedent set by paying your car loan with a credit card. While moving balances may make you feel like you’ve paid off your debts, you haven’t really accomplished much — yet. In reality, balance transfers are nothing more than a parlor game if you don’t take your debts seriously. And if you let your balances grow as you bounce them, you won’t fare any better.

How to pay off your car loan without a credit card

If you don’t have a concrete plan to pay off your car loan, chances are that transferring your balance won’t really help you. Instead of moving money around, you might be better off changing your money mindset. To truly manage your debts, you need to pay them off, not just move them from place to place.

Fortunately, most car loans allow you to prepay your bill without penalty. This means you can pay more than your minimum monthly car payment if you can afford it.

It may not be easy, but almost nothing is worth doing. If you’re struggling to scrape together the money for your car payment, consider these steps to allow some wiggle room in your budget:

Look for simple ways to reduce your expenses

If you’re short on cash, look for ways to spend less. The easy categories to cut out are food and entertainment. Could you save money by cooking at home and dining out less? Could you shop for sales and save money on food? If you go to the movies several times a month, you could save a considerable amount of money by renting a movie from Redbox, streaming free movies and TV shows from network streaming services, or, if you still have them, by revisiting your DVD collection instead. Look at all your expenses to find easy ways to save, then track them.

Start using a monthly budget

While no one likes the idea of ​​budgeting, planning your spending can have a huge impact on your finances. Zero-sum budgeting, for example, helps you put “work” to every dollar and reduces waste in the process.

Try to earn more money

Killing your car payment could be as simple as taking a part-time job, more hours at your current job, or a hustle in your free time. Any extra money you make can — and should — be thrown into your car loan if you’re serious about paying it off.

[This article was first published on The Simple Dollar in 2020. It was updated in February, 2022.]