“How are you going to make your down payment?”

When I heard that question, I instantaneously realized that I had not considered every financial aspect when preparing to make my car purchase.

I had followed all the steps:

• Established a car budget
• Considered changes in expenses, like insurance and gas
• Looked at my credit report
• Obtained a pre-approved loan

The one thing I had failed to consider was how to get my down payment for the dealership.

A cashier’s check made sense, but I didn’t realize that my bank would be closed on Saturday afternoon.

After I explained my situation to the financial representative at the dealership, he mentioned: “Did you know you can make your down payment with a credit card?”

I was relieved. My bank may be closed. But my credit cards, my credit cards are always open. I would now be able to take the car with me without having to go back to the bank and dealership on the following Monday. Plus, I was excited about the credit card rewards points I would receive.

I reached for my wallet and took out the two credit cards with the best rewards programs.

Why it is Unwise to Buy a Car with a Credit Card

Using my credit cards to make the down payment for my car felt wrong, but it was more convenient and I was sure I would not pay finance charges because the money was already in my account.

That last part was key to me deciding to use my cards. I would have never gone ahead with it if I did not have ALL of the money in the bank.

Before I could even get home with my new purchase my phone rang.

Excited to use my new hands-free feature, I answered.

“Hello, this is Chase bank. We are calling to verify a suspicious transaction on your rewards credit card.”

I assured the representative that I had made the purchase and thanked him for calling.

Before I got home, I received a call from my other credit card.

The calls made me feel unsettled that I had resorted to using credit cards; it just didn’t feel right.

The next morning, I logged in to schedule my payments, but the charges were still pending, so I had to wait longer. By Monday, my credit cards reflected the purchase, so I scheduled payments to pay them both off.

After my credit cards were paid off, I was once again relieved.

Big Charges = Big Risk

Shortly after my car shopping was done I accompanied a friend on her car shopping adventure. After all, I had just gone through the process myself.

More than once the car salesman suggested she didn’t have to wait on her insurance check and she could use her credit cards and pay them off later.

I strongly advised that she not take advantage of the convenient offer. Using credit cards to make a large purchase before you have the money in your account is a recipe for disaster.

Consider this quote from a creditcards.com article on the topic.

About 1 in 19 auto buyers put all or part of their down payments on credit cards in 2008, according to data from CNW Research. The average amount that they charged: $3,044. But, their track record with that plastic is not good. Less than 1 in 8 pays off those charges within 90 days.”

Although your intentions may be to pay off the balance soon, if you don’t already have the money, many factors can contribute to an extended pay off time period.

The most important reason to avoid using your credit card is that it can cost you in the long-run.

Credit card annual percentage rates (APRs) are significantly higher than those on a car loan.

• $3,000 on a credit card APR of 20 percent will cost you $600 a year in finance charges.
• That same amount on a car loan with an APR of 6 percent will only cost you $180.

That’s an extra $420 a year that will be charged in finance charges!

Try a credit card debt calculator and see how much more you would pay using a credit card as opposed to paying it back with a car loan interest rate.

Buying a car is one of the biggest purchases most make, so consider all of the possibilities and make the right decision.

Don’t have your car purchase become a financial burden for years to come because of credit card debt that you incur when buying the car.