Why You Should Not Use Your Line Of Credit To Pay For A VehicleOct 11th, 2019
Purchasing a vehicle is an exciting time but can be stressful when it comes to the financing portion. There are many ways to purchase a vehicle, however, some individuals choose to use their line of credit from their bank to pay. This is an important payment plan to avoid. Lines of credit can be a great tool if you are stuck in an emergency situation but are typically not the best solution for a vehicle purchase. There are many disadvantages of lines of credit that most individuals are unaware of, so it’s incredibly important that you read the fine print and do your own research before using it for big purchases.
Here are AutoIQ’s top 6 reasons why you should never use your line of credit to pay for vehicle:
- Interest rates fluctuate with prime
This means that your rate could go up at any time and the result of the fluctuation could result in variable payments. It can become a difficult task when you attempt to calculate your debt totals in this situation when you don’t have a set amount to use.
- Lines of credit are designed for emergencies and investment opportunities
Think of Lines of credit as a last resort – only use it when absolutely necessary. They are a great option when you are in an emergency and need the money immediately, have a big project such as a costly house repair or unexpected expenses and have the means to pay it back on time. However, it’s important to not become reliant on a line of credit as there are many flaws that come with it that will be discussed in this post.
- Many lines of credit are secured
Having a secured line of credit means that it is tied to your house which is considered a second mortgage. This can become a stressful situation as failure to make full payment for any reason can result in repossession of your home.
- Lines of Credit were designed as interest only loans
Your line of credit will have interest charges on top of the actual amount you borrow. This of course means that the interest rates will add to the amount of money you borrowed which results in an increase in debt and decrease in assets. This will also take a toll on your credit score if you don’t pay it back correctly on time.
- Your Line of Credit is a Demand Note
Unfortunately, your peace of mind with a line of credit is quite thin. The bank has the option to demand payment in full at any time and if you are unable to pay it off, they will use their “Right of Offset.” This means that the bank can transfer cash from your other bank accounts to pay off the loan. The bank can do this at any time without any cause.
- Our full-service finance team represents all major banks and can negotiate the best terms and conditions on your behalf.
Don’t overpay for your vehicle purchase – when you finance your vehicle with the dealership, they can negotiate the best rates with the banks and also allow for fixed term open loans that save you money and can allow you to trade vehicles sooner.
In conclusion, it’s your best bet to consider all of your options before landing on applying for a line of credit. Dealerships are here to help you and fully train our financial managers to assist you with making your vehicle purchase a smooth transaction that will benefit you in the long run.