Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money. The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Whether or not you can pay car payments by credit card depends on the lender. While some car dealers will accept car payments by credit card, many only accept car loan payments via bank transfer, check, debit card and other non-credit forms of payment. Still, there may be ways around that limitation. But even if it’s possible, is it a good idea to pay car payments with a credit card?
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Before charging your car payments, it’s a good idea to consider all of the ins and outs, particularly the costs you might face.
Related: 7 ways to achieve financial discipline
Paying Car Payment with a Credit Card
Even if a dealership does not allow individuals to pay off a car loan directly using their credit card, there are several ways around this limitation that still enable buyers to charge their car payments. If you’re interested in paying a car payment with your credit card, here are some ways you may be able to do so.
1. Third-Party Credit Card Processors
While a car dealer may not accept credit cards directly, they may accept card payments that are facilitated by a third-party processor. In such cases, a dealer may work with one specific processing company, or they may accept funds from any processor that facilitates credit card payments.
It’s important to note, however, that while such processors may make it possible to charge car payments to an individual’s credit card, such payments are typically subject to extra fees, often based on a percentage of the payment.
2. Balance Transfer Credit Card
Balance transfer credit cards allow the account holder to transfer the balance owed on another loan onto that credit card. However, there may be some restrictions on the type of debt that can be moved.
For example, some balance transfer credit cards only allow an individual to transfer over existing credit card debt, meaning that if the car payment wasn’t initially made by credit card, that balance would be ineligible. Other balance transfer credit cards may allow individuals to transfer other types of debt, including car payments.
One restriction that many balance transfer credit cards typically have in common is that they don’t allow an individual to transfer a loan that was originally obtained from that same lender. So if a car loan was obtained from a specific bank, the buyer would likely not be able to pay for that loan using a balance transfer credit card issued by the same bank or its affiliates.
3. Cash Advance
Credit cards also typically offer cash advances, which allow an individual to withdraw money against their credit card from an ATM or bank branch. A cash advance is not the same as withdrawing money from a checking or debit account or even other types of credit card purchases.
While a cash advance provides the cardholder with access to immediate cash flow, which they can then use to pay for essentially anything they want, cash advances carry different lending terms than other credit card purchases. They are subject to interest (often at a higher rate than the APR on purchases), and there’s also typically no interest-free grace period, even if the advance is paid back by the statement due date. You may face other fees as well. Additionally, the cash advance limit on a credit card may be lower than the credit card limit itself.
4. Money Transfer
It may also be possible to pay for a car with a credit card if the lender accepts money transfers from Western Union or another such service. However, it’s a good idea to check with the credit card issuer before initiating a money transfer, as this type of transaction may be treated as a cash advance and ultimately cost more due to the resulting interest and other fees.
Pros and Cons of Making Car Payments with Credit Cards
Even though all lenders may not accept credit cards to pay for a car loan, there are certainly ways around this restriction in many cases. But just because it’s possible to make car payments with a credit card doesn’t always mean it’s the best choice.
Here are some pros and cons of charging car payments.
Pros of Making Car Payments with Credit Cards
- While car payments are due in full on the due date each month, credit cards allow an individual to pay only the minimum by their statement date and then carry a balance. Although it’s never a good idea to charge more than one can afford (and outstanding balances are subject to interest charges), this can be a helpful option if unforeseen expenses make cash flow tight in a given month.
- It also provides more flexibility timing-wise, allowing an individual to make a payment when it suits them (for example, on payday), instead of their monthly auto loan due date.
- Charging big-ticket items to a rewards or cashback credit card may increase benefits and earnings (if car payments are eligible under the rewards program). It can also help a car buyer hit bonus thresholds, such as welcome bonuses that provide increased earning for spending a certain amount, without spending more money than they already are.
- Some balance transfer cards offer promotional periods with 0% APR charged on loans that are moved over from elsewhere. In such cases, it may be possible to save on interest.
- As anyone who knows how car loans work will attest, these loans are typically secured using the auto itself as collateral. This means that if the buyer fails to make payments, their car can be seized. But credit card debt is unsecured revolving debt, reducing the risk of car repossession.
Cons Making Car Payments with Credit Cards
- Many of the workarounds that enable car buyers to charge payments to their credit cards incur extra fees. Whether it’s a 3% processing fee charged by a third-party who can facilitate payment, ATM fees, higher interest or cash transfer fees, or even prepayment penalties for paying off the balance in full, these all increase the cost of buying a car, an already depreciating asset. Ultimately, paying by card could cost more than the original car loan or the cost to refinance a car.
- Credit scores are determined, in part, by an individual’s credit utilization ratio, or the percentage of available credit that they are using. While some credit utilization is a good thing — it shows lenders an individual can manage their credit effectively — too much signals risk to the lender. FICO, for example, looks for utilization below 30%. While installment loans, such as car loans, don’t factor into credit utilization in the same way, credit card balances do — and charging car payments may cause one’s credit utilization to increase beyond the recommended threshold. This can result in a drop in one’s score.
- Zero percent APR offers on balance transfer cards often only apply for a promotional period — and interest climbs after that. If the car loan is not paid off before the new interest rate kicks in, the buyer may end up ultimately paying more for their car.
How Might Paying Car Payments With Credit Cards Affect Your Credit Score?
As mentioned previously, making car payments with your credit score could ding your credit score by increasing your credit utilization ratio, or how much of your available credit you’re using. Car buyers in the U.S. spend an average of $563 on car payments each month, according to data from Experian. This could end up accounting for a big chunk of your available credit, depending on your limit.
Other Ways to Pay Your Car Loan Payments: Refinance Your Car
If making car payments by credit card doesn’t seem ideal, there are other options, such as taking out a new loan with more favorable terms, whether with a new lender or via same lender refinancing.
But just like paying by credit card, there are also pros and cons of refinancing your car, including the potential for additional costs due to prepayment penalties. Before you sign on the dotted line, you’ll want to make sure you ask any and all refinancing questions to ensure refinancing actually makes sense for your situation.
The Takeaway
A car is one of the most significant purchases an individual can make, and the costs involved mean it’s a good idea to put some thought into how best to pay back a car loan. While paying your car payment with a credit card may sound like the answer, make sure to consider the pros and cons involved. Another solution to more easily making your car payment is refinancing.
Learn more:
This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
Lantern by SoFi:
This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org)
All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.
*Check your rate: To check the rates and terms you qualify for, Lantern conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.
Personal Loan:
SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student Loan Refinance:
SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).
Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 01/31/22. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.
Auto Loan Refinance:
Automobile refinancing loan information presented on this Lantern website is from Caribou. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.
Secured Lending Disclosure:
Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.
Life Insurance:
Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC. Click here to view our licenses.
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How to refinance an auto loan
In times of lower interest rates, you may start to wonder about whether you should refinance your auto loan. And why not? According to 2020 data from RateGenius, money saved with a new auto loan is at an all-time high. Auto loan refinancing deals saved borrowers $989.72, on average, in 2020.
With that much cash up for grabs, it’s no wonder that auto refinancing loans are in big demand. Key strategies for auto owners who want a good refinance loan experience include being prepared and making sure to understand all the details. Read on for information that may help.
phototechno/ istockphoto
When you refinance an auto loan, you’re essentially securing a new auto loan. You use the new loan to pay down the balance of the original car loan. That all takes time, effort and money (for loan applications and servicing fees). That’s why you should be sure you have a good reason before you go to the trouble of taking out an auto refinancing loan.
So when should you refinance your auto loan? The fact is that vehicle owners refinance their auto loans for a variety of reasons that can all be worthwhile, depending on the situation. Most often, car owners refinance their loans to achieve the following personal financial goals, such as:
- To Lower Monthly Auto Loan Payments: Getting a new auto loan at a reduced interest rate can cut monthly payments down, leaving more cash in the till for other household expenses.
- To Get a Lower Interest Rate: Depending on the loan, a car owner may also be able to save money over the lifetime of the loan by getting a reduced interest rate. Take a vehicle for which the original loan was $25,000 and the refinance loan is $21,000. For a 60-month loan where the interest rate is cut from 7% to 5%, for example, the refinancing could save approximately $6,000 over the life of the loan.
- To Shorten the Loan Term: Car owners who are cash flush may shorten their loan terms to pay off the car faster, thus saving significant cash with lower interest rate payments.
- To Extend the Loan Term: Car owners who need some financial breathing room after a job loss, an injury or illness, or a divorce or other issue can extend the term of the loan to reduce monthly (but not overall) loan costs.
- To Get Some Extra Cash: If you have enough equity in your car, you might be able to take out a refinance loan that’s more than what you owe. That way you could get cash in hand, too. This is called a cash out car refinance. But realize that if you opt for this kind of refinancing, you will still have to pay back both the car loan and the extra money.
Also recommended: If you’re new to the world of auto finance, learning some auto loan terminology may help.
istockphoto/demaerre
Where does a borrower start with the auto loan refinancing process? Ideally, with a good grip on what a refinancing deal has to offer. Auto loan consumers are best off when they fully understand the entire refinancing. It can help to make sure you have answers to these questions:
- Do you meet the lender’s financial requirements? While each bank or lender has its own rules and regulations on auto refinancing, many banks have similar lending limits. For example, your auto usually must be less than 10 years old and have less than 125,000 miles on it. While the exact figures may vary from lender to lender, know possible vehicle restrictions heading into any refinancing deal.
- Are there any prepayment penalties? It’s usually a good idea to pay off an auto loan as soon as possible. Doing so clears the debt and puts more money in your pocket. However, some financial institutions may stick you with a prepayment penalty if you pay off the loan early. Be sure to examine your existing loan contract for any prepayment penalties and factor them into your costs.
- Do you know the total cost? Before green-lighting an auto loan refinancing deal, you need to know the full cost of refinancing the car. Make sure you know how much you’ll save per month and, even more importantly, over the life of the loan. When you refinance, you may be saving money on a monthly basis but adding more dollars to the overall cost of the vehicle. You’ll want to be sure you’re factoring any fees or penalties, too. A good auto loan refi calculator can be highly useful here.
- What’s your credit score? Most lenders will expect a minimum credit score from potential borrowers. Typically, a FICO credit score of 700 or more will get you the lowest loan rates on an auto refinancing loan. That said, a FICO score of 660 should ensure that you qualify for a standard auto loan refinancing deal.
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With that prep work complete, now it’s time to figure out the best path to a good auto refinance loan. Get the job done right with these action steps.
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Start the auto loan refinancing process with some data-gathering. To file a loan application, you’ll typically need these documents:
- Your original auto loan: Lending institutions will require the original loan paperwork to process a new loan. The original loan paperwork should include the loan amount, the monthly payment, the interest rate, the payoff number and the up-to-date loan balance
- Your vehicle information: Auto loan providers will also ask for your current vehicle information (think a Carfax for your own vehicle.) This document should include the vehicle’s make, model, year, mileage and vehicle identification number.
- Your auto insurance paperwork: Make sure you have your car insurance records, including type of insurance and the amount of the insurance included in the policy. Auto lenders won’t make a loan to an uninsured or significantly underinsured vehicle owner. That’s because the lender has a stake in the vehicle as well. If the car is damaged or totaled, your lender will want to know it was properly insured.
- Your employment records: Your auto loan refinancing lender may also ask for proof of income and employment, to ensure you have the means to repay the loan.
ipuwadol
Kick off your auto loan refinancing deal by listing what you want from the loan, such as a lower interest rate, no or low fees, a streamlined application process, and solid customer service. Having a candid conversation with your current financial institution is also a good step to take since it may give you an idea of what kinds of loans you could qualify for. And as you look for refinancing loans, remember that you may also want to explore online auto loan refinancing options since they tend to have fewer fees and competitive rates.
gpointstudio / istockphoto
When you’ve found the loan you want, follow the instructions to apply. A typical auto refinancing loan application likely includes the following:
- Name
- Date of birth
- Email address and phone number
- Address
- Social Security number
- Driver’s license number
- Work status
- Your bank’s name, address, routing number and checking account number (so the lender can deposit your loan amount, assuming it is not your bank)
- Your vehicle information
- Your auto insurance information
Once you complete the application, review it thoroughly to confirm that the information is accurate and up to date. Any discrepancies or missing information may lead to a loan rejection. And know that the lender will likely perform a credit check.
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Once your application is approved, your new auto loan provider will pay off your old auto loan or give you the funds to do so, and become your auto loan manager. Future payments will go to the lender who handles your refinanced loan. It is, however, a good idea to confirm with your original lender that the auto loan was paid off and you don’t owe any more payments. After that, be sure you pay the new loan on time and start enjoying the savings from your refinanced auto loan.
DepositPhotos.com
Whether you simply want to get an auto loan with more favorable terms or you’re looking to adjust your car loan repayment period, refinancing your auto loan allows you to take advantage of lower rates, put more cash in your pocket, and get a loan that meets your unique personal financial needs. Handled correctly, refinanced auto loans can be a big win-win for vehicle owners, who can gain an auto loan with better terms and potentially save money in the process.
Learn more:
This article originally appeared on LanternCredit.comand was syndicated by MediaFeed.org.
Lantern by SoFi:
This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org)
All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.
*Check your rate: To check the rates and terms you qualify for, Lantern conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.
Personal Loan:
SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website.
More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student Loan Refinance:
SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website.
More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).
Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 09/30/21. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.
Auto Loan Refinance:
Automobile refinancing loan information presented on this Lantern website is from MotoRefi. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.
Secured Lending Disclosure:
Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.
Life Insurance:
Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC.
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