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Can You Pay a Car Loan with a Credit Card?

Some lenders will allow you to pay a car loan payment or the entire balance with a credit card, but not all. You should mainly question the wisdom of doing so, taking into account two primary factors:  interest rate and debt utilization.

Credit Card versus Auto Loan APR

The first reason that you should not pay your car loan with a credit card is the interest will be higher. Even if you are putting the debt on a new card with an introductory interest rate of zero percent, those low rates only last for a short time, then you are going to be subject to interest between 14 and 24 percent. Before putting that loan debt on a credit card, ask yourself:  ”will I realistically be able to pay the balance in full before the low introductory rate expires?”

Being Cognizant of Your Credit Utilization Ratio

The second reason to avoid paying a car loan with your credit card is a huge dip in your credit score from a high debt utilization ratio. This is the ratio of balances compared to credit limits. Since this ratio accounts for 30 percent of your FICO credit score, it is very important. Thirty seems to be the magic number here. If your balances are more than thirty percent of your credit limits, your score begins to dip. Each five percentage points above thirty drops your score more. So, if the balance from your car loan nearly maxes your credit card, your credit score may fall into the sub-prime category until you pay the balance below the magical thirty percent level. In the end, it is rarely wise to pay a car loan with a credit card.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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