Credit card payments are convenient for the on-demand culture, but when it comes to purchasing a car are they worth the risk for extra debt? Dealers would do well to provide customers the pros and cons of whipping out the plastic.
If customers rely too much on credit cards for car buying, they could end up in a scenario where they make car payments to not only their auto lender but their credit card company, too, possibly at a higher interest rate. For others, putting a down payment on a credit card is just an easy way to buy; they’ll pay it off quickly.
Nearly a quarter of recent car buyers used a credit card to pay for some or all of their purchase, according to a November DealerRater survey. About two-thirds of the 6,193 respondents who bought or leased a car said they did not consider paying with a credit card. About 10 percent considered it but chose not to, and about 2 percent considered it but were told they couldn’t.
Many dealerships and the lenders they work with have a $2,000 to $3,000 limit for down payments on a credit card, insiders said.
“Most consumer sites would suggest that credit card payments are not the way to go,” said Jim Houston, senior director of its auto finance practice at J.D. Power. The customer will end up paying high interest rates.
Most customers don’t carry a checkbook or a bundle of cash with them, so the options are credit or debit. “It’s easier to leave it on a credit card if it’s an impulse purchase,” Houston said.
Dwayne Wiggins, F&I University trainer at American Financial & Automotive Services, theorizes that customers use credit cards because of the rewards and points credit card companies offer. “As we get into the faster paced world, a credit card is easier access to money,” he said.
For customers who use a credit card with the commitment to pay it off sooner rather than later, putting a down payment on a credit card seems to be a viable option. But for those who use a credit card because they are missing the money for a down payment, debt owed to multiple organizations -- the credit card company and the auto lender -- could be a challenge down the road.
Some customers may not understand the potential downside of paying by credit card, but dealers can help. For satisfied, returning customers, dealers should educate them on the risks and benefits of paying with a credit card.