Use credit card sensibly to maximise benefits

If utilised properly, credit cards can prove to be a great asset. Let’s understand the benefits of using a credit card and saving through it.

If you also want to buy a car and have a credit card with a high credit limit, then it’s time to use your credit card properly. Here, we will understand how you can get a discount of about 5-10 percent on the price of the car, all by using your credit card effectively.

Buying a car is a big deal. You will put a significant part of your savings into the down payment and take a loan for the remaining amount. In this scenario, you can get a good deal with credit cards.

For example, say you want to buy a car worth Rs 15 lakh. You make a down payment of Rs 10 lakh using your credit card. So, even if you get a 5 percent reward return rate, it essentially means you’ve saved Rs 50,000.
On the other hand, if you make this payment directly using a debit card, you won’t earn any such rewards. So, it’s pretty easy to understand how credit cards can help you save more.

Apart from regular rewards and milestone benefits, you can even get your credit card’s annual fee waived off. Most credit cards waive your annual fee if you spend over and above a certain amount annually. Since buying a car will mean you definitely will exceed this limit, your annual fee would be waived off.

You also get additional benefits from earning milestones, which come in the form of thousands of air miles. However, it is  essential to keep in mind a few things while using a credit card.

Car dealers may charge you an extra 1 to 2 percent for making payments via credit card. By adding these charges, the dealer intends to transfer the burden of Merchant Discount Rate, or MDR on the customer. Not only will this affect your net reward returns, but will also increase the total cost of your car.

To avoid this, negotiate with the dealer. Ask them to bring this charge down to less than 1 percent. Many times, dealers also agree to waive the entire charge. So, purchase your car only after inquiring from 4-5 dealers and choosing the best available deal.

Another thing to keep in mind is that you should only use a credit card to buy a car when you have enough funds to pay off the outstanding balance in the billing cycle.

Do not confuse it with car financing via credit card. Remember that you will have to pay a hefty interest of 15- 25% on credit card loans, which is way higher than general auto loan interest rates.

When you buy a car, you will inevitably end up spending a large part of your credit limit for that month. This can increase your Credit Utilisation Ratio (CUR), which can affect your credit score. So, keep your credit limit in mind while making your down payment and proceed accordingly.

In this manner, you can use your credit card effectively to buy a car. But before that, it’s necessary to assess all the pros and cons of this facility, to make a decision that suits you best.