I think they were gonna put it all on the credit card and then make the payment all at once. (is that correct?) The strategy being to collect a bunch of rewards points then pay it all off in a single payment.

I am not a authority on credit cards. I have been told however that even exceeding 33% of your credit card limit in a payment cycle can have adverse affects on your score. I say this only as a comment that may be TOTALLY false. I am trying to recall who told me that. You may want to call your credit card company and ask them about that.

Agreed about not depleting your cash reserves. We have alot of cash we are saving for our eventual purchase and while it was tempting to pay off my wifes student loan, we are just making large chunks each month.

Anyways hope that helps.

SD Realtor

Having too much of your credit in use at present can adversely affect your credit score, but I’ve never heard of high credit use in the relatively distant past having such an effect. They are talking about buying in 2009, so if they pay the car off now using a credit card it shouldn’t be an issue. As long as they stick to the plan of paying the card off right away (an important caveat), the rewards card approach should be a good plan.

I’d also suggest targeting any other high-interest debt for early repayment. Basically anything with an interest rate higher than what you would reasonably expect to earn from normal investments. That typically means credit cards, personal loans, and the like. If you have any loans with unusually low rates, such as student loans, it is probably better to invest the money rather than use it for early pay-downs.

I’d recommend using your rewards card a lot, but not using it to pay off the car.

Car loans or any installment loans are merely a tradeline on your credit score and thus paying off the car loan early really doesn’t mean much one way or the other. If the interest rate is high and you have cash pay it off, because a car loan is neither helping nor hurting you.

On the other hand if you use the credit cards sparingly such that small balances do show up on your credit report (cycle different from paying it off) that will help improve your score.

One of the factors that helps is outstanding credit available. Another is that you keep balances to less than 10% of the total credit available. If 10% is too hard, 30% is much better than say 50%.

You have a lot of time. If you want to get into the 800’s you need to use credit cards at some point, you just don’t need to carry a balance.

Option 1:
I suggest you to pay off the car loan that is with 6% interest rate:
Unless you can use the money to invest something else like, stock that can generate more than 6% return. If your return is 10%, you make 4% profit. The 10% is taxable, but you still make profit. However, the future stock market will be very volatile. If you are not sophisticated investor, you better don’t touch it. If you put money to CD, the max is about 5.5%. So, you lose 0.5% to carry the loan, plus the 5.5% CD profit is taxable. So, you actually losing 0.5% + tax.

Option 2:
I don’t suggest you to use the reward credit card to pay off your car loan:
You did not mention the interest rate and reward % of your rewards credit card. So, it’s hard to compare. But I know the max reward % is about 2%. Sometimes, credit card offers very low introductory rate, but it will go up tremendously, like over 20%!

recordsclerk,

I use my cash rebate c/c a lot, but I pay off everything month. I tried to buy a car using c/c and planed to pay off right way. But the dealer said NO! It’s what I could imagine. If I used c/c, the c/c company would charge the dealer 3-5%. That’s why the c/c company could give us 2% rebate!

If the dealer let you to use c/c to pay, they had to make sure they needed to charge you 3-5% more in order to cover the c/c company’s charge. So, you were the one who actually paid the 3-5%. Even after the max 2% rebate, you still over paid 1-3%. Unless, the dealer was willing to pay the 3-5% additional cost.

The dealer told me if they let me to use c/c, they had to charge me 5% more since they quoted me the cash price! They have already gave me good deal, there was no room for them to eat the 5% cost! I totally agreed with them since they needed to make their living.

Everything has a cost!

I have very high credit score, but my score was not a lot lower before I sold & paid of my 2 houses. The loan of my 2 houses was much more than a car loan. Credit score needs time and payment history to build up.

Well, the down payment was only $3K, even max 5% was only about $150. May be they have already added $150 to the price on the ad. since the dealer let you to pay up to $3K only? You still needed to finance for the rest right!

Also, the dealer took the $3K, c/c dep. to make sure you would buy the car in that night. They spent a lot of time to negotiate with you, so they did not want you to walk away and never went back.

That’s good that it seemed like both parties were happy!