Can You Buy a Car With a Credit Card?

Introduction

Can you buy a car with a credit card? Well, technically yes, you usually can — as long as a few factors are in place, like a high enough credit limit and a car dealership that allows it. And depending on the card used, you may be able to earn some serious rewards in the process.

But it’s not the most conventional way to buy a car, and it can come with some risks. So let’s take a look at both sides of the equation.  

Quick Facts About Buying a Car With a Credit Card

• Not all car dealerships accept credit cards

• Dealers who accept cards often charge a processing fee

• Sometimes you can only put the down payment on a credit card

• Interest rates are usually higher on credit cards than on auto loans

• Using a credit card for a large purchase could impact your credit score

How To Buy a Car With a Credit Card

If you really want to pay for a car with your credit card, you’ll need to follow a few simple steps.

Step 1: Check your credit limit

First of all, ask yourself if you have a high enough credit limit (and available credit) to put a car on your card. Paying for a car requires a substantial amount of money, even if you’re just making the down payment with plastic. The last thing you want to do is max out your cards if it’s not an absolute emergency.

Step 2: Notify your credit card issuer

It’s always a good idea to notify your issuer before you make any substantial purchases on your credit card. Otherwise they might decline the transaction for unusual card activity, and that will hold up the process.

Step 3: Find a dealership that accepts credit cards

Some dealers will only allow you to use a credit card for a portion of a vehicle purchase, like the down payment. Others won’t let you use credit cards at all, because they usually face significant transaction fees for processing the payment.

If the processing fee is 3% and your car costs $30,000, that’s a $900 fee right off the top. Which means they’re either less likely to negotiate other discounts and perks with you, or more likely to charge that fee back to you on the purchase.

Is It a Smart Idea To Use a Credit Card to Purchase a Car?

Most people would probably say no, it’s not a good idea to buy a car with a credit card. The interest rate on credit cards is way higher than most auto loans. And if your credit is good enough to have that much room available on your cards, you can surely get a good rate on a car loan just as easily.

But whether or not you should pay for your new ride with plastic really depends on your personal situation. As with most things in life, there are both pros and cons.

Pros and Cons of Buying a Car with a Credit Card

Under the right circumstances, it could make sense to put a car on your credit card. But without several key factors in place, the drawbacks to this method will outweigh the benefits.

Pros of paying for a car with a credit card

• Earn rewards: If your credit card earns you cash back rewards, points or miles, you could snag yourself a nice pile of rewards by paying for a large purchase like this with your credit card.

• Rack up bonuses: If you get a new card that comes with a sign-up bonus, or your current card has a promotion going on, you could multiply your rewards many times over — beyond what you’d normally earn.

• Avoid interest: If you pay your full balance within the grace period — or your card has a $0 promotional rate for a limited time —  you could get away without owing any interest on the purchase.

Cons of paying for a car with a credit card

• Face high interest: If you carry a balance on your card, don’t pay it off quickly or don’t have a low-interest promotional rate, you’ll pay way too much in interest for this purchase method to make sense.

• Pay transaction fees: You can expect the dealer to pass along their processing fees to you as a transaction fee or convenience fee, which will usually be around 3% of the purchase price — on top of any other transaction fees they or your card issuer might charge.

• Go over your limit: If you miscalculate your charges and go past your credit limit, your purchase will either be declined or you’ll have to pay over-limit fees, and neither scenario is any fun.

• Harm your credit: Making a large credit card purchase could negatively impact your credit score in a few ways, including an increased credit utilization ratio, or an inability to pay — leading to late fees and more debt.

Four Ways to Purchase a Car Without a Credit Card

Luckily, you have a few card-free alternatives when it comes to purchasing a car.

1. Get car financing: Car loans typically have much lower interest rates than credit cards do — although several variables determine the rate you actually get, including the lender you choose and your credit score. Higher credit scores typically mean lower rates.

2. Save up cash: If you have the funds to pull it off, buying a car with cash can give you leverage to negotiate the best deal. It also helps you stick to your budget since you can only spend what you’ve got on hand.

3. Use a co-signer: When you apply for a loan with a co-signer, you get to use their credit history to your benefit — assuming their credit is better than yours. That could help you get more financing, better interest rates, and provide a cushion if you have trouble making any payments.

4. Consider cheaper vehicles: Looking for a less expensive vehicle may open more options within your budget to choose from. This might mean selecting a different model or brand of car, picking a car with fewer upgrades, or purchasing a used vehicle instead of new.

5. Lease instead of buy: Buying a car is not the only way to get one. Many drivers choose leasing over buying, which could also lead to lower monthly payments.

Bottom Line

Buying a car is a big life moment — there’s nothing quite like that new car smell. But it’s also one of the larger purchases you will ever make, so how you pay for those new wheels should be given extra consideration.

If you’re thinking about buying a car (or even making a down payment) with a credit card, weigh the pros and cons first. Getting tons of rewards points might sound great, but it’s important to consider the potential drawbacks, like impacting your credit score and paying more in interest and fees than you would with a standard car loan.

It’s easy to just say “pay it off in full to avoid interest charges.” But that assumes you have the $30,000 (or whatever the car’s price is) lying around and available. That’s not really practical for a lot of people. The good news is, if buying a car with a credit card doesn’t rev your engine, you have several alternative ways to get the deal done.