Should you refinance your car, use your credit card or take out a personal loan to cover those car payments?

There are all sorts of different types of debt. Some are frivolous, like heaps of credit card debt that you’ve racked up in order to maintain a luxurious lifestyle. Others are more necessary, like taking out vehicle finance to buy a car. In fact, very few
South Africans are able to purchase a car in cash, with the majority of us going the finance route.

Problematically, our economy hasn’t been in a good place for a long time and the cost of living keeps rising. It’s understandable that many are struggling to meet their car repayments.

Thankfully, there are several options available before you throw in the towel, including refinancing your vehicle, using your credit card, or taking out a personal loan. Each option has its pros and cons.

Here is a more in depth look at your options, so that you can make the best decision for you.

Opting To Refinance Your Vehicle

Refinancing your vehicle can be a good option if you have a high-interest rate on your current vehicle loan. By comparing the offer you get if you refinance versus what you are currently tied to, you may find that you’re offered a lower interest rate resulting in monthly payments, and even a more generous payment period. All in all, you could end up with a better deal that helps you save money on interest over the life of the loan.

However, it’s important to note that refinancing your vehicle may not be the best option if you have a low credit score or if you owe more on your car than it’s worth. You may also find that the interest rate is higher than what you’re currently paying. Added to that, there could be additional admin fees and a possible penalty for settling your existing vehicle loan early.

Use our Vehicle Refinancing Calculator to explore your options.

Turning To Your Credit Card

The other option that you have available is your credit card. You could use your credit card to make your monthly payments (and your other debts). However, this can be a risky strategy, as it can lead to even more debt if you’re not careful. Credit card interest rates are typically much higher than other types of loans, so make sure you look at all of this very carefully. You’d far rather make sure that you can pay off your credit card debt as quickly as possible, instead of increasing this debt to cover car payments.

For that reason, while you could use your credit card, it may not be the best choice.

Comparing Credit Cards With Vehicle Refinance

Let’s take a look at an example of where your credit card wouldn’t be a better option than choosing to refinance your car. In the table below you can see that the interest rate alone is almost double, meaning that there’s a huge difference in the amount of interest you’d pay if you opted to use your credit card instead of this example of terms for vehicle refinance.

Loan terms	Credit Card	Vehicle refinance
Loan amount	R 30000	R 30000
Interest rate	25%	12%
Loan duration	24 months	24 months
Monthly instalment	R 1763.48	R 1582.35
Total repayment	R 42323.52	R 37976.40
Interest	R 12323.52	R 7976.40

Taking Out A Personal Loan

Now finally, let’s talk about the personal loan option. This is certainly a promising solution, especially if you have high-interest debt that you want to consolidate into a single payment. Personal loans typically have lower interest rates than credit cards, making them a more cost-effective option for debt consolidation. Additionally, personal loans have fixed interest rates and fixed repayment terms, which can make it easier to budget and plan for your payments.

Additional Factors To Consider

When deciding between refinancing a vehicle, using credit card debt, or taking out a personal loan, several factors should be considered. This includes your credit score, the amount of debt you already have, and your ability to make your payments on time.

If this seems overly complicated, you wouldn’t be alone. This is precious when it is a good idea to speak with a financial advisor or credit counsellor to help you develop a plan to get back on track if you’re struggling to keep up with your payments.

Feel informed?

Ultimately, managing debt can be challenging, and while there are several options available to help you get back on track, it’s important to weigh up the pros and cons carefully. Certainly, refinancing your vehicle, using your credit card debt, or taking out a personal loan are all viable options. Just make sure you know what you’re signing up for before you commit to anything.

While you’re here, don’t forget that AA Inform is home to a range of useful tools and resources, including articles on the best vehicle finance options and how to refinance your vehicle, as well as a Vehicle Refinancing Calculator and a Personal Loan Calculator!