Woman making a purchase on tablet
@JIRAIST/Twenty20

When it comes to borrowing money for a large purchase, credit cards are one of the most expensive loan options available. Still, there are times when it makes sense to use a credit card for a large purchase — even if you need some time to pay it off.

To use a credit card for a large purchase the right way, you need to have a plan from the start. You also need to avoid the most common pitfall of credit cards — carrying debt at a high interest rate.

How to use a credit card for a large purchase

There are three main scenarios where it makes sense to use a credit card for a large purchase:

  • You have the funds to pay for a large purchase in cash but you want to earn rewards.
  • You have the money to pay for a large purchase in cash but want to secure important consumer protections.
  • You applied for a card that offers 0% APR for a limited time and plan to pay your balance off in full during your card’s introductory offer period.

Since many rewards credit cards offer generous signup bonuses if you can spend several thousand dollars within the span of a few months, it makes sense to sign up for a lucrative offer before you make a large purchase. By using your card for the expense, you’ll earn valuable rewards points that could be worth hundreds of dollars in cash-back or travel. And, as long as you pay off your balance right away, you won’t be charged any interest on your large purchase.

Keep in mind that many rewards cards offer valuable perks such as purchase protection, guaranteed returns, or extended warranties. By using a card with these benefits when you make a large purchase, you can protect your investment or secure additional incentives.

With either of these options, the main pitfalls of using credit are the same. First off, some rewards cards come with annual fees that are not waived the first year. If you choose a card with an annual fee the first year, you’ll have to pay it for the privilege of using that credit card.

Second, you will have to pay interest charges on your large purchase if you don’t pay your balance in full by your due date. With the average credit card interest rate is now over 17 percent, the interest charged on a large purchase will add up.

If you don’t have rewards or benefits in mind but need some time to pay off your large purchase, consider signing up for a credit card that offers 0 percent APR on purchases for a limited time. Many cards that fall in this category offer 0 percent APR on purchases for up to 18 months. Some balance transfer cards with this benefit also come without an annual fee, making them an especially good deal.

If you sign up for a card that falls into this category, however, plan to pay off your purchase before your card’s introductory 0 percent APR offer ends. If you don’t, you will pay interest on your remaining balance once your card’s interest rate resets to its regular rate.

When you shouldn’t use a credit card for a large purchase

If you need to borrow money for a large purchase and can’t qualify for a credit card that offers 0 percent APR for a limited time, you may want to reconsider using a credit card for your large purchase altogether. Credit cards are expensive, yet there are other options to consider that will cost less.

For example, you may qualify for a personal loan with a lower interest rate if your credit is in good shape. Personal loans come with fixed interest rates, a fixed repayment schedule and a fixed monthly payment, making it easy to borrow money and know exactly how much you’ll pay in interest and fees.

If you have considerable home equity, you may also want to consider a home equity loan or home equity line of credit (HELOC). While these loans work differently, the fact that both are secured by the equity in your home means you may qualify for a lower interest rate than you could get with other options.