Do you have a car loan outstanding? According to leading UK Lender Now-Loan, paying off a small car loan with a credit card is now increasingly popular. But, before you go ahead and pay off your car loan early, there are a few things you need to know. Paying off your car loan early with your credit card has both pros and cons. 

Is A Purchase Or A Balance Transfer?

When you choose to pay off your car loan using a credit card, you are, in fact, making a balance transfer. Many credit card users think they are making a purchase when they pay off a car loan with their credit card, but this is not the case. 

That is far from the truth. Instead of buying something, you are making a balance transfer. The first thing you need to do is to make sure your credit card accepts balance transfer. You also need to find you will not be charged for the service. Having the right kind of credit card will make all of the difference. 

It is often tempting to assume a credit card company accepts transfers from different sources. Not all credit card companies accept balance transfers from personal loans. Before you go ahead, you need to contact your credit card company and find out what rules apply. They may accept a balance transfer from another card, but not from a loan company. That means you may end up paying a higher rate of interest on your balance transfer. 

Should I Take Out Another Loan?

It is not a bad idea. Car loans from franchise garages or car dealerships often come with a hefty price tag and a high rate of APR. Before you stick your toes in the water, make sure you are aware of what APR the car loan company is charging you. It is a good idea to borrow the money from another loan provider if the APR on that loan is lower than the original rate. 

You should also check if your current loan agreement comes with a penalty clause for early settlement. If it does, it may cost you more money to transfer the debt, 

What do you do when you are not sure? Most credit card companies and loan companies provide online calculators. If they don't, it is a good idea to give them a call. A loan adviser should be able to tell you if you would benefit from taking out a new loan to pay off the debt.

A Balance Transfer Under The Right Circumstances

Transferring a balance under the right circumstances will save you money. There is no doubt about that. But, you need to make sure you are doing the right thing. A free of charge balance transfer can help to save you money if you make regular payments, and pay it all off before the interest rate free period is over. 

Once the interest rate free period is over, it is likely any remaining balance will occur an APR which is higher than the original one on your loan. This is the way credit card companies make money. Make sure that you really know what you are doing before you even consider transferring a balance. If you are not sure, contact NowLoan. Their advisers will guide you in the right direction.