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Are you thinking about buying a new car? Now’s the right time to buy, with “President’s Day Month” sales going on. Apparently this marketing holiday went from a day, to a week, to an entire month-long event for many retailers. Also, as all the radio ads remind us, dealers are clearing out old stock to make room for new models.
If you are thinking about purchasing a car, you may also be thinking about a GM Rewards credit card. But is it really the good deal the marketing materials would have you believe?
The GM Rewards card is a Mastercard credit card issued by HSBC bank. At first glance, it looks nearly as good as many other high-end rewards credit cards, like Chase Freedom and Discover More.
The GM Rewards Mastercard offers:
- No annual fee
- 0% APR for the first year on purchases and balance transfers
- Variable APR between 13.99% and 22.90%, depending on your creditworthiness
The Rewards program is also similar to other top-tier cards, giving you 5% cash back toward the purchase of a new GM car any time you make a purchase. The rewards you can redeem are limited to the redemption allowance for the car you select, and you can only earn a set amount of rewards per year.
However, when you shop through the GM Cardmember Bonus Shop, you can earn additional bonus rewards of up to 11% additional or more! These bonus rewards can be redeemed beyond the redemption allowance for your selected car, as well as beyond your annual earnings cap.
Online retailers in the Cardmember Bonus Shop portal include popular stores like Kohl’s, Target, and Barnes & Noble. This is nice because these are stores most middle-income people (and GM car drivers) are likely to shop.
It all looks good, right?
Plus, this card comes with some additional perks. Those other benefits include:
- Easy online account management
- Exclusive information about new about GM deals and sales in your area
- Benefits associated with the entire line of MasterCard products, including fraud protection
Drawbacks to the GM Rewards Card
It’s easy to see that this the GM Rewards card offers a lot of advantages not offered on other credit cards affiliated with retailers or specific manufacturers. It’s almost rivals “general” rewards credit card programs that offer cash back — with three big drawbacks:
1. What if you change your mind and decide you don’t want to buy a new GM car, or can’t afford one?
2. Limit on rewards you can earn, whereas Discover More and Chase Freedom have no limits.
2. Your rewards are redeemable only for a brand new, eligible GM car — not a used GM car or a lease.
Is a Brand New Car Ever a Good Deal?
There’s another factor to consider if you are thinking of getting a GM Rewards Mastercard to earn cash back for the car of your dreams — the depreciation value on that new GM car.
When you purchase a brand new car, it can lose nearly one-quarter of its value within the first year — most of that depreciation occurs when you first drive the car off the lot.
Let’s look at an example of a brand new Chevy Traverse — a top-ranked crossover SUV — that you decide to buy for $30,000. According to this car depreciation calculator at Moneyzine.com, that car will lose an average of $6,900 of its value in the first year. That’s close to 25% of the purchase price. Depreciation may be higher, or slightly lower, depending on a number of factors, including gas prices, customer tastes and preferences, and the make and model of the particular car.
Instead, you can pick up a three-year-old GM truck — still under warranty and new enough to be reliable — for the same price. Not only are you probably getting a lot more power, features or comfort for your money, but the car will only depreciate by $3,750 (on average) in the first year. That’s about 10 % of the purchase price.
Your gap insurance costs (the amount of insurance coverage you need to cover your car loan vs. the car’s actual Blue Book value) will also be lower, potentially saving you hundreds of dollars a year.
Let’s say you use your GM Rewards card to get cash back on that new car purchase. Suppose you spend $5000 on your card in one year. You’ll get a $250 credit toward the purchase of your car. But the second you drive off the lot with that new car, you just lost nearly $7000. Those rewards credits don’t sound so great anymore, do they?
Here at CreditShout.com, we rarely recommend rewards cards programs with limits on the ways you can spend the rewards. The GM card is no different. If you are planning on buying a car — new or used — your best bet is to save your cash rewards on a high-quality cash back rewards card and then use that money toward your down payment on whatever vehicle you decide is the best value for your money.