Yes, if you can meet the repayment requirements, you can easily finance a large purchase using a credit card. If you pay off your balances in full regularly, it reflects your positive credit behavior. It could attract an array of benefits. You may choose to finance a large purchase and pay off the balance in full duly. If you choose to pay off the purchase over time, for example by converting into EMIs, it attracts interest. Here is some information that will be useful to you if you’re thinking of financing your next big purchase with a credit card.
When To Choose a Credit Card Payment for large purchases
Here are certain circumstances that favor the use of a Credit Card for a large purchase:
- Emergency Purchase
When you run short on savings and have to make a large emergency payment, should you use a Credit Card? Yes, if you can settle the large amount in full or installments. It is questionable to use a Credit Card if both are far-fetched.
- Warranty benefit
A large purchase could come with a period of warranty, say, furniture with 2 years warranty.
One of the Credit Card perks is the leverage of the manufacturer’s warranty. You can finance the large purchase for warranty coverage and extended benefits.
The large purchase breaches your current budget but is it manageable to be financed by credit? If you can afford to clear the credit balance leveraging warranty, choose Credit Card payment.
It is not advisable to choose a Credit Card, just to leverage warranty benefits since it creates debt.
- New Credit Card with a promotional 0% APR
Are you a holder of a new Credit Card?
Do you have the perk of 0% APR for the new Credit Card?
You could make Credit Card payments if you have a plan to settle credit during the promotional period.
A 0% APR might come with monthly fees. If the purchase credit and fees can be settled, you could use a Credit Card.
If you think this isn’t feasible, it is better to make smaller purchases with the new Credit Card.
- Rewards on a large purchase
Credit Card payments fetch reward points. Generally, large purchases fetch higher and valuable rewards.
If the interest rate overtakes the rewards, with high credit, it is advisable to not choose a Credit Card payment.
You can choose a Credit Card payment if rewards add to your plan of affording the credit. Rewards are an advantage to maximize your credit strategy if you have credit discipline.
- Bonus on purchase
You might have an offer to avail a bonus to a certain limit of purchases using your Credit Card.
The bonus offer could only last for a few months. If you are looking to make purchases in that period, Credit Card payments can reap hefty bonuses.
You may choose a Credit Card during the qualifying period if you have saved adequately to pay off your credit balance.
What if your credit is more expensive than the bonus? It is not a good idea to use a Credit Card when credit expenses override the bonus offer.
Planning before Large Purchase Credit Card payments
Let’s take an example of your financial goal to finance your home interiors. Suppose it costs up to ₹ 15,00,000. You could follow these strategic steps to choose a Credit Card payment:
- Check if the purchase can be covered with your savings. If yes, you can finance your home interiors with your savings in their entirety.
- When your savings cannot cover the expense, you can run the numbers for choosing a Credit Card. A Credit Card payment can attract an Annual Percentage Rate (APR) if you settle the credit beyond a year. If you can settle ₹ 15,00,000 over the year in manageable installments, you can finance with a Credit Card.
- If the installment break up is feasible and affordable, you can execute the purchase with a Credit Card. You could also choose to make the Credit Card payment if you can clear the balance within the year. Equitable Monthly Installment (EMI) is one such determinant to choose a Credit Card.
- You could look for a 0% APR period and benefits that can enable you to use a Credit Card for a large purchase.
- In addition, you can look for rewards that may entail a large purchase and how they can be used at their best.
Alternatives to finance large purchases
Other than Credit Cards, there are alternatives to finance large purchases such as :
- Using savings to make large purchases
- Availing personal loan for financial requirements
- Installments of payments via Buy Now, Pay Later (BNPL) scheme
Takeaway
Using a Credit Card for any purchase requires a commitment to pay off debt with fee and interest as applicable. Credit Card behavior influences your Credit score. It is an indicator of your creditworthiness.