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An expensive auto of a famous make and your own house are the first major purchases in your life. The banking system provides a variety of methods to finance these assets. But while, the only affordable way of obtaining a house for most Americans is taking out a mortgage, an auto purchase can be financed through a number of sources. It could be hard cash, a lease, a traditional loan, or a credit card.

The new tendency among wealthy cardholders has been to purchase an auto on a highly lucrative cash back or point rewards plastic, a strategy that has its evident advantages and hidden traps. If the idea of using a high limit card with instant approval to obtain a car is pressing more with each day, there are some important tips to know before you undertake the venture.

First, you should be able to afford making a substantial down payment on the new car. If not, you'll end up owing much more than the car is really worth. Your new vehicle will depreciate in a number of months but you'll still keep paying on it long after. Second, you would need a savings account which will support you in case of significant monthly income decrease or job loss.

If the down payment and additional savings are not a problem for you, then a low interest or 0% APR rewards credit card may come in handy. Research has revealed that cash back rebates are more popular than any other reward programs because savvy car buyers may use that extra money for investment or auto maintenance purposes. If you buy, say a $ 40,000 auto, the 5% of cash rebate earnings will be $2,000, enough to add to your comprehensive car insurance premium.

So, the rewards are the advantage that makes you choose a bank card instead of a loan. The other evident benefit is the introductory period offering you 0% APR on purchases. Compared with a traditional fixed-rate loan, it implies great savings. Given that some intro rates may last up to 15 months, you may pay most of your loan interest free. Anyway, you are recommended to pay much more than the minimum payments to reduce your principle as much as you can. Remember, after the introductory period, you'll be charged a regular APR, which size depends on the total debt outstanding. You might consider a balance transfer in this case but it involves additional spending, too. Also, the lower monthly payments will keep you owing to the bank for a long time and may play against you once you decide to sell the car.

Now, as to the pitfalls of using a plastic card for a vehicle purchase. According to most of the agreements, any issuer reserves the right to change the card terms any time for any reason, no matter if you're current or not on your monthly bills. It's a different thing with a loan. Though a loan generally charges a higher APR, the lender cannot change the terms of the loan in cases other than defaults. So, you are more secure with a traditional loan.

Disappointment may be caused by the price of the auto, which might be higher than the cash price. Keep in mind the transaction fees a dealer is charged by your bank for accepting the card as a payment.

If the advantages outweigh the pitfalls, go ahead for an application of 0% cash back card to finance a new car. If not, think to apply for a loan alternative.