The Superhero of payment methods
In one of my previous articles “how to buy a car using a credit card” I explain how credit cards are the cheapest way to borrow money to pay for a new car. Although you need to plan and organise, plastic borrowing can be interest free for the entire term of your loan.
But there is a second additional benefit from buying a car via credit card. You are provided with an additional layer of protection not afforded by personal loans, car finance deals and debit cards.
“Pay in full or in part towards a second hand car via credit card between £100 and £30,000 and the card provider’s equally liable if something goes wrong”
Section 75 of the Consumer Credit Act
This is a fantastic and still largely unknown protection. It means if you buy a second hand car and the dealership goes out of business, you can still claim your money back from the credit card providers. This still applies even when you’ve discontinued your credit card account!
If you experience problems with the used car you’ve purchased, you have additional rights. Credit card companies are severally liable and mutually responsible.
This has nothing to do with card firms being kind or generous. Its legal protection that prevents you from having to pay for something you either didn’t receive or wasn’t as described. Therefore, this law applies to all credit card purchases and not just cars.
If that wasn’t enough good news, here is even MORE…
If you feel somewhat edgy about spending thousands of pounds on your credit card to buy a car, know this:
Pay your holding deposit via credit card and you’re covered!
Once again, the law is very specific on this too. You get protection for the WHOLE price of the car, even when paying only a percentage of it on credit. Again, the only condition here is that the car costs less than £30,000 and more than £100.
Use your card and you are protected! How awesome for today’s car buyers who often feel they are taking a huge risk when buying a used car.
Your critical information
There are circumstances that will eliminate the section 75 act, so read this before buying your car on credit card:
- You don’t get this protection when buying a car privately. Firstly, the private seller probably won’t have the facility to accept credit cards (and if they do you should probably run like hell.)
- Drawing cash on your credit card to buy a car does NOT count. You MUST make the purchase by directly using the credit card. There is no grey area here.
- The same goes with payment using credit card cheques. According to the Financial Ombudsman, Section 75 doesn’t apply on “indirect forms of payment” such as drawing the cash on credit card or using a cheque guarantee.
Buying from auction on credit card
I cannot say with absolute certainty if buying from auction on credit card will provide you with the same assurances. This is because car auction houses have legitimate indemnities that protect them from liabilities. However, in my judgement you will almost always have the same protection as you do when buying from a dealer. But you may have a little more red tape to uncut.
Overall credit card protection is a wonderful way to look after your interests when buying from car dealerships. You now have two safeguards:
- Your new car must be fit for purpose and be ‘as described’, else the dealer is legally obligated to put the car right or offer you a full refund.
- Using your credit card gives you an additional layer of protection that you otherwise miss out on.
You’ll need to check with car dealers to ensure they accept credit cards as a form of payment. Some don’t and in cases like this you may want to reconsider buying a car from them.
Those that do will probably want to charge you an additional 2.5% on your purchase. This is normal because Merchant Services charge the dealer to accept credit card payments. However, when I was trading the fee was just 0.68%. So, if a dealer is charging you more than 1% they are almost certainly profiteering from your payment method (read more on that here.)
But remember that everything is up for negotiation, even credit card transaction fees!
Hope you enjoyed this article and feel more assured when buying a second hand car from dealers.
The Used Car Guy