What should I use...credit card or credit union?

Question

I'm looking for some serious answers here...please. I want to buy a used vehicle for $15,000. My question is should I use my credit card to buy it with an interest rate of 5.99% apr (credit limit $25000) or should I get a credit union loan with an interest rate of 8%? I'm just trying to find out where I will be better off in the long run. Looking for intelligent answers only. Thanks....

Answer 1

take out a loan. With a credit card, you have no end in sight to the payments. With a loan, you know that in 60 months or whatever it's over.

Answer 2

An important part of your answer depends on the monthly payment each of those entities will require, and this information is not in your question. Your greatest concern should be your monthly budget, that is the amount of cash you earn per month less your cash expenses. If your cash expenses are greater than your cash income, then you are headed for trouble, and that's called bankruptcy.

While the credit card is offering a better interest rate, it may require higher monthly payments compared to the credit union. While you always want to pay the lowest interest you can, it may not be feasible if the re-payment period is short, which means that your monthly payments will be high.

Also, you need to find out if the credit union rate is an APR so you are comparing apples to apples. Assuming they are both APR's and the repayment period is the same, the difference in interest is $300. That sounds like a lot of money, but if you are in a cash crunch at some point in the future, you will probably (and this is just my experience) get much better service and understanding from your credit union than a credit card company. Actually, the credit card interest rate sounds suspiciously low, given today's prime rate.

Make sure you read all the fine print associated with the APR that the c/c company is stating, i.e. the rate may expire at a certain point and then go to 26.99% (yes, some c/c companies charge that much interest, and more if you miss a payment).

My sense is that there is some catch with the credit card offer. Read the fine print for both offers.

My last piece of advice is a car is one of the worst investments you can make. They depreciate very quickly. Can you find a cheaper vehicle? Try to move beyond the status issue, if you really want to save money, buy a cheaper used car. $15,000 is a lot of money for a used car.

Answer 3

Neither. Buy a piece of crap for $1000 and make payments to yourself for 10 months ($350/mo).

In ten months, sell the piece of crap for the same $1000 + $3500, get a $4500 car. Make payments to yourself for ten more months, another $3500 to put with the other car. Get a $7000 car.

Keep doing this, and by the time you would have paid off the loan you're talking about, you'll be driving a paid-for $15,000 vehicle. Going your route, you will be driving a $5000 car that you paid $15,000 for.

It really works out the same either way. Both methods will end up costing you money, because cars go down in value. The difference is that with the system that I described, your car will be getting newer and better as you make payments, rather than getting older and crappier, as with a loan.

Buying a car on credit means that you are accepting to make car payments for the REST OF YOUR LIFE. The other system allows you to skip a payment whenever you need to.

You should NEVER own a vehicle, paid for or not, that costs more than half of your yearly income. That's just too much of your net worth tied up in something that is losing value.

If you do borrow money for a car, USE THE CREDIT UNION. Your CC rate can go up to 29% if you are ONE DAY LATE. Even if you are late on another CC, your light bill, your rent (if in a corporate apartment), they will raise your rate to the default. When I had a car loan with a credit union (before I got smart), they didn't care how late I was. There was no penalty at all, even if it was over 30 days. They just let the interest roll. I never went much more than 30 days, so I don't know when they would have gotten nasty, but just try that with a CC.

If you play with snakes, you're gonna get bit.

Answer 4

As long as the interest rate on your credit card is fixed use that. Also, if you choose this option make sure you are making payments that are comparable to a vehicle loan. Use a loan calculator to figure out what the payments would be. However, if it is variable you could wind up with a much higher interest rate than 8% before you pay off the vehicle. In that case you'd want to use the credit union.

Answer 5

Choosing the right type of loan is difficult. Comparing rates, fees, etc. has been made easier with financial calculators such as this one: http://www.fuzeqna.com/aurgroup/consumer/kbdetail.asp?kbid=734

This calculator and lots more info is available on a credit union's web site. Check out your credit union to see if they can help you make this important decision.

Most new auto loans carry 4 or 5-year terms, but you can often adjust the term to fit your needs. A shorter term loan generally results in a higher monthly payment than a longer term loan, but longer term loans charge more interest. Overall, it's less expensive to choose a shorter term if you can afford the payments.

One question worth asking yourself is... could you hold off until you have $15,000 saved and then buy the car with cash? Or perhaps buy half of it with cash, then only borrow half. While a new car is fun to drive, the fun wears off and the payments continue!

Good luck ... and safe driving!

Answer 6

I think in the long run the credit union is the best choice. Your auto loan with the credit union will be a fixed payment. Unlike your credit card , you will have minimum payment due, you may be prone to only pay the minimum and will end up paying more for you car.
But then again, with the car paid off you may save on your auto insurance because you wont have to get full coverage. That extra money can be applied to the auto.

Answer 7

Go with the loan. Although the interest rate may seems higher (8% vs 5.99%), you'll actually pay less interest over time. This is because of the way interest accrues on credit cards versus on loans. Most loans are simple interest loans, meaning interest only accrues on the principal loan balance. Credit cards accrue interest using compounding interest - meaning you're being charged interest on top of interest. The loan is the better way to go.

Answer 8

If you plan to use your credit card, be sure you don't miss a single payment, or your 5.99% interest rate could change instantly to double or triple that. I have always used my credit union when making purchases like this. Sometimes they'll even work with you to lower the initial interest rate...

Good luck!

Answer 9

Credit Unions generally have lower interest rates. Is the interest rate fixed on the credit card? A credit card company can raise the interest.

Answer 10

First of all. I have never entertain the idea of buying a car using my credit card. I think you would be better off buying a car through the credit union and pay it off in 3 years. Do the math.