For a long time, I thought I would not buy a car.
Uber and Ola were available. I don’t like driving. And taking a loan to buy a car, a depreciating asset, was not my cup of tea.
But then, life happens.
Uber and Ola became unpredictable. Fares shot up 2X to 3X. And the wait times increased from 5 minutes to more than 20 minutes.
So finally I decided to buy a car.
Buying a Car With a Credit Card: The Process
Step #1: Shortlist a Car
My criteria were simple:
- I wanted a small car for the daily commute
- It should have an automatic transmission
- Since I will not take any loans, it should fit in my budget
After a lot of research, I decided to go ahead with Hyundai Grand i10 Nios.
Warning: Most car dealership these days offer a 100% on-road price loan. It’s very tempting. Don’t fall for this! You will easily end up going beyond your means.
#2: Find a Car Dealer
I started soliciting offers from various car dealers in Bangalore. Since car sales were declining, everyone was eager for business. It was a buyers market.
I started running into the same issue with every dealer – accepting credit card.
The maximum credit card payment they could accept was 50K. Rest, I need to pay using cheque or bank transfer.
After a lot of negotiation, I was able to crack a deal with 1.5% extra charges.
The 1.5% extra charge was OK because the reward rate for my Infinia card was 3.3%. Even with the additional cost, I still earn 1.8% extra benefits.
Since the car value was over 8 lakhs, my net bonus points were worth Rs 15,000.
Pro Tip: The extra charges makes sense only if you can earn points on your cards. Some cards might not give you points for purchasing a car. Others might cap your ability to earn points. Check with your card issuer before making the purchase.
#3: Make the payment
It was time to seal the deal.
Since the car had only recently launched, Hyundai accepted online bookings. I paid a booking amount of Rs 10,000 using my card.
The remaining amount was paid directly at the dealership by swiping my card.
Everything went smoothly. And we got the delivery of the car in 1 week 🙂
Pro Tip: Check with your card issuer about any large-transaction cap before you head to the dealer. If there is a cap, request them to remove it temporarily. Once you make the car payment, ask them to reinstate the cap.
Learnings From Buying a Car With a Credit Card in India
#1: Your Credit Limit is Important
Since a car is usually a big-ticket purchase, you’ll need a high credit limit.
If your current card has a low limit, request to increase the limit or get a new card.
Pro Tip: Consider splitting the payment over multiple cards. It needn’t always be a single card.
#2: Car Dealerships Don’t Like Credit Cards
It’s no secret. Car dealerships don’t like people paying using a credit card.
Why would they? It hits their margins.
For VISA and Mastercard, they typically have to pay 1.5% to 2.0% as transaction fees. For AMEX, they can end up paying up to 3%.
For a Rs 10 lakh car, the fee will be Rs 30,000 for AMEX card payments!
But to make a sale, they will be willing to negotiate. Your goal should be to get to a % that’s equal to or lower than your card’s reward rate.
E.g., if the reward rate for your card is 2%, you should aim for 2% or lower extra charge.
Pro Tip: I used a simple negotiation tactic. While talking to the sales guy from dealership A, I mentioned that dealership B offered 1.5%. He agreed to match it!
#3: Your Credit Score Might Get Impacted
If you are buying a car, that means you are maxing out your credit limit.
Your card utilization can reach 100%, or in some cases more, and that might hurt your credit score.
Warning: If you already have a low score and are considering a bank loan, avoid using credit cards to buy a car.
#4: You Get Benefits Beyond Credit Cards
I use the CRED app for making credit card payments.
By making the payment through CRED, I earned more than 8 lakh points.
The estimated value for these points is around Rs 2,000 to Rs 4,000, depending on the offer you choose.
Pro Tip: Split a large payment into multiple payments. This way, you can get multiple #killthebill offers to win actual cash.
#5: Super-Premium Cards Are Best Suited For Car Purchase
Super-premium cards like HDFC Infinia are best suited for this type of purchase.
Not only do they give you a higher reward rate, but they also offer another nifty feature – No Pre-Set Spending Limit.
You can ask your bank to remove the credit limit temporarily. Even if your existing credit limit is Rs 8 lakhs, you can buy a car worth Rs 20 lakhs with this feature.
Warning: Using a charge card that does not have a credit limit can negatively impact your credit score.
Credit Card As an Alternative to Loans
Sometimes, we might be short of a little cash. You can use credit cards to cover up the shortfall.
It’s easier to use credit cards because you don’t have to deal with a loan application or hypothecation.
However, credit cards usually charge a high-interest rate. Sometimes as high as 48%. So use cards judiciously.
Pro Tip: Credit card loan is unsecured, whereas a car loan is secured. Having a mix of secured and unsecured loans helps improve your credit score. Consider a car loan since they increase your score and is often cheaper than credit cards.
Should You Buy a Car With a Card?
Yes, if you fulfill the following criteria:
- You can pay off the credit card in full
- You have a super-premium credit card with a high credit limit
- The reward rate on your card > the extra charge you pay to your car dealer
- You plan to convert the spend amount into EMIs
- You are considering a bank loan and your credit score is already low
- Your company offers you an attractive car leasing policy
- You don’t have your emergency fund sorted out
- Your card issuer does not consider car purchase as a “retail” spend that qualifies for points
Over To You:
Have you bought a car using a credit card in India? Let me know your experience via the comments below.