A car, truck, or SUV can be one of the biggest purchases you’ll ever make, so it’s worth considering how you’re going to fund that shiny new set of wheels.
So, can you buy a car with a credit card? It depends on the dealership. Many dealers will let you make a down payment with a card, but it’s harder to find one that lets you use the card for the entire purchase. Along with this, some dealers charge a fee for processing credit cards.
When does it make sense to buy a car with a credit card?
Buying a car with a credit card can be a smart money move in certain scenarios. It depends on the reason for using the card, the policy of the dealer, the rewards offered by your card and your overall financial situation.
Here are four situations in which it makes sense to pull the card at a car dealership:
Car dealer accepts credit cards
Many car dealerships set a dollar limit on the amount you can pay with a card. Some also charge a 2% to 3% fee to cover credit card processing costs.
Such was the experience of Paul Weaver, financial expert and founder of The Income Finder. His car dealer allowed him to put $3,000 of the $40,000 purchase price on his preferred Chase Sapphire card. Weaver was charged a 3% fee for any amount over $3,000 he paid by card.
Most dealers limit the amount they charge on a credit card to $5,000 or a maximum of $10,000, says Randy Henrik, automotive finance consultant and president of Auto Dealer Compliance. According to Henrik, a luxury car dealer — like Acura, Lexus or Maserati — is more likely to let you buy an entire car with a card than a regular one.
“If the difference between selling and not selling is that the dealer can do it,” he says.
Do you have money to pay the bill in full?
Make a down payment or purchase a car on the card only if you have cash to cover the costs. Earning interest on a large purchase will instantly wipe out your rewards.
Financing a car with a credit card is almost always a bad decision because there are usually better and cheaper options. The only exception would be a credit card car down payment with an introductory offer of 0% APR on purchases, but only if you have a plan to pay off the charge within the allotted time period.
“It wouldn’t make sense to us if we couldn’t pay off the balance in full right away,” Weaver says.
You want to get a big signup bonus
Making a down payment or buying a car can make it easy for you to reach the minimum amount required to receive a large welcome bonus. The most lucrative bonuses tend to come with higher spends, so if you’re eyeing a premium card, this could be a big buy to earn you that big bonus.
It’s not uncommon to find a welcome bonus of $500 to $800 or more when you spend $3,000 to $5,000, says Nick Reyes, senior author at Frequent Miler.
“Even if you can put only a few thousand dollars on a credit card, this is a great opportunity to return a significant amount,” he says.
You compared the card with other options
It is important to weigh the pros and cons of buying all or part of a car with a credit card, as well as evaluate other options. While there is a “feel good” aspect to getting the most of the rewards and knowing you can cash them in for your dream vacation, it’s important to think through your situation.
For example, if you’re using your emergency fund to pay off a credit card bill for buying a car, it might make sense to see if you qualify for a zero or low interest car loan. Use your card until you know you can pay it off quickly or before the end of the introductory period to avoid interest charges.
What to look for before buying a car with a credit card
There are a few things to think about to ensure the health of your finances before swiping your credit card:
Your credit limit
You need to make sure that the card you want to use has a high credit limit. The credit limit is the maximum amount of credit you can borrow from your credit card, and you are likely to be penalized for exceeding it. To avoid exceeding your credit limit, you can request an increase in your credit limit. If you have more than one card with an issuer, you can also find out if the issuer allows cardholders to move credit limits from one card to another.
Keep in mind, even if you have a high enough limit, you will hurt your credit score by running out of credit cards. Experts generally recommend keeping credit utilization below 30%.
Extended term for 0% annual introductory rate
You should consider taking advantage of the initial zero interest annual period. Keep in mind that not all offers are the same and the cards come with different initial APR offer periods and various additional perks that may benefit you beyond the initial APR.
Make a plan so you know how you can pay off your card during the introductory period. After the initial APR period ends, you will need to continue making payments using your regular APR card.
Awards
Paying with a credit card can help you increase your rewards. “The decision to use our card was made solely to redeem the points earned,” says Weaver.
Whether you’re looking for a lucrative signup bonus or using a credit card with great cash back, there are plenty of ways to earn rewards on a large credit card purchase. However, this only makes sense if you receive a reward and pay no interest – the latter will easily void your rewards if you don’t pay off the balance quickly.
Alternatives to using a credit card to buy a car
If you can’t pay your credit card in full quickly, you may have to pay a high interest rate on a significant balance. So make sure you understand some of the other car buying options.
- Cash paymentA: Working on a budget can help you save enough money to buy a car, although it may take some time. Using cash will not hurt your credit score, unlike the risks you may face when using a credit card.
- car financingA: You can get a car loan to buy a car through a financial institution. In most cases, interest rates are lower than those of a credit card. In addition, you can find lenders who are willing to work with bad credit.
- Get a guarantorA: If you’re struggling to get good credit on your own, try getting a family member with good or excellent credit to co-sign. With a guarantor, you can improve your chances of getting a car loan.
- Trade in your old carA: If you own a car, your car is eligible for a trade-in and you can use the amount received from the trade-in as a down payment.
- Use PlasticA: If your car dealer of choice doesn’t allow you to pay by credit, you can use Plastiq, a service that allows you to pay for almost anything with a card. “Basically, you pay Plastiq with a credit card, and Plastiq sends a check to your biller,” says Reyes. “They charge a credit card processing fee, but it might be worth paying that fee if you’re getting a new credit card bonus.”
bottom line
Making a major purchase, such as buying a car with a credit card, should be done when you are fully informed and financially secure. The rewards, perks, and signup bonuses are tempting, but weigh the pros and cons before making your final decision.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
