Finance or loan vs 0% credit card

sophieellie

Hi there, I’m looking at buying a new car soon. Because I’m young and don’t have much of a credit score, loans are extortionate with APR, that’s if I even get approved, and finance is also extortionate. About 14% APR for 4 years. I’ve been looking around at credit card and savings and I’ve come across an MBNA credit card with 0% APR for 24 months and 20% APR after that. If I applied for this, I could pay off the majority of the car within the 24 months and have to hardly pay much within the next year to pay it off, with the 20% APR. Meaning I wouldn’t have to pay much more than the original amount. Would this be the better way to go instead of a loan or finance ?
many thanks 

born_again

If loan & finance rates are high. Odds on you will not get much of a credit limit or find that the timescale for interest free is reduced. Also make sure that dealer will take a large payment on a credit card. many are very reluctant to do this. 

When you say "New" is that new to you or a brand new car?

sophieellie

New to me so a 2016 reg perhaps, which wouldn’t be that much anyway. So I could pay off the majority within the 24 months that are 0% apr and then I’d only end up paying £500 apr for the year or so after ?

Grey_Critic

So it is a 2016 registration - what happens when it goes wrong - and they do. How will you pay if it is an expensive repair?

One thing is certain, everybody on here will warn you about the all singing and dancing Warranty that comes with the vehicle.

You have more chance winning the lottery than getting them to pay out.

sophieellie

I have money in my account but I’d be paying for the car this way to save that money for if something goes wrong with the car

Herzlos

It probably won't work because:

1. Most car dealers won't take a credit card for the bulk of the purchase. You could potentially get a money transfer and pay via a bank transfer though.

2. If you're young and don't have much credit rating, your only likely to get a 0% card with a pretty low limit like £1000.

Your best bet is to see what rates you'll get from your bank for either car finance or an unsecured loan. They'll know more about you than anyone who can just see a credit report.

Ebe_Scrooge

As previous posters have said, with a thin credit file there's a good chance you'll be rejected outright for a credit card, or if you are accepted you may very well find that promotional period they offer you is shorter than advertised - along with a fairly low credit limit.  And most car dealers will not accept a credit card for anything more than a small deposit, due to the fees they get charged by the credit card company.

If you can't afford to buy the car without finance (of whatever sort), it would be prudent to use savings to buy a cheaper car outright.  Then rebuild your savings pot (using the money you would otherwise have been paying in loan repayments) to build up a reserve for the inevitable repairs and routine maintenance that will be required.

Spending a lot of borrowed money on a depreciating asset is fine if you've got plenty of spare cash to play with, but it's rarely a good idea if your means are more modest.

Goudy

As already written, dealers don't tend to take thousands on a credit card so your 0% spending won't be much use however long.

You often have a facility on credit cards to transfer money to your bank account but there is often a fee for this and if it is interest free after the fee, it will be for a very short time then revert to 29 or 30%.

I would not recommend you use this facility unless you are certain you can pay it back in time.

Your other option might be to use some of your saving to buy the car then shop around for credit for the rest, say 50/50.

This will obviously reduce the amount borrowed and if you don't over stretch yourself, reduce the amount of time over which you pay it back.
So it's 14% of half the value of the car over 2 years rather than 4.

jimjames

sophieellie said:

I have money in my account but I’d be paying for the car this way to save that money for if something goes wrong with the car

Better to use that for the car and then use credit card to pay for repairs. Resolves the problem of dealers not taking payment for car by credit card

lemondrops69

Sometimes on 0% cards you can also do a money transfer, so they transfer cash into your bank account up to a certain % of your credit limit, so you could use it that way to pay the dealer with a debit card 
You could also take out another 0% card after the first ones rate changes. If you did the above you'd have to be really strict on yourself in paying it back otherwise you'll end up on the debt free board.

As others have said unless have have a good credit history you wont get a decent credit limit on the CC

Car_54

lemondrops69 said:

You could also take out another 0% card after the first ones rate changes. If you did the above you'd have to be really strict on yourself in paying it back otherwise you'll end up on the debt free board.

With interest rates rising, galloping inflation and a recession forecast, 0% cards may be hard to find in two years' time.