Can I Buy a Car Using a Credit Card?
The short answer is yes, but you must remember your credit card spending limits, merchant acceptance, and interest rates and fees.
I will dive into the pros and cons of using a credit card for this large vehicle purchase. It may be VERY tempting to take advantage of cashback rewards and convenience, but there are also disadvantages like extremely high-interest rates and potential debt accumulation. No worries, I will dive into this a little later.
There are alternatives if buying a car with a credit card seems unlikely. Together, I will discuss options like auto loans, personal loans, and dealer financing that might be better in your situation.
By the end of this article, you'll understand whether buying a car with a credit card is the right choice for you.
Can you purchase a car with just a swipe of your credit card?
The answer is yes, but only if the dealership will accept credit card payments for the full purchase price.
Earning your credit card points and circumventing the loan approval process is very tempting. However, you expose yourself to tremendous financial risk with your credit card payments.
The truth is that the safer route is the traditional financing option.
If you want to buy a new or used vehicle, you must apply for financing through a dealership unless you pay cash upfront.
Most dealerships require you to pay with cash or check, but some accept credit cards.
You could use your credit card for the down payment, but sometimes dealerships require an additional 3% -5 % added for the processing transaction fees on top of your down payment. Unfortunately, this percentage might cancel out any benefits of your rewards credit card.
However, buying a car with a credit card is only sometimes possible. Some states don't allow consumers to purchase vehicles with a credit card, and others limit the amount of credit you can use.
Are there Benefits of Using a Credit Card to Buy a Car?
The major benefit is the ability to front the money if you don't have it. The pros include convenience and the ability to purchase a car without saving up for a down payment.
The cons include the possibility of incurring credit card interest rates and charges resulting in being overextended on your credit limit.
Remember, putting the car on your credit card will impact your credit utilization ratio. As noted in the other articles about credit scores, you do not want to hinder your spending requirements by maxing out your available credit.
This is not good for your credit score and will dramatically reduce your score by many points.
However, an approved auto loan will not impact your credit utilization ratio but will affect your credit score since you are taking up more debt.
Can You Afford the Monthly Payments?
Before deciding whether to buy a car with a credit card, weigh the pros and cons and ensure you can afford the payments.
Does it make sense?
As my other blog post mentioned, paying cash or in full offers the best financial path forward as you avoid interest fees and do not impact your credit score.
Don't be lured in by attractive promotional periods for low-interest rates or transfers. They all have an expiration date and a typical 2.5% - 3% Credit Card Processing Fee associated with the offer.
However, it might be an option if you could access a credit card check within 18 months with 0% interest. But remember, you must pay off the entire purchase price in full or face steep interest rate charges.
If you are disciplined enough to pay down your debt before the introductory period ends, you could technically have a 0% loan for the car. But many shoppers have budget constraints and cannot pay in under 24 months.
The key sticky point is paying off the balance within 18 months. Once you exceed that amount, the interest rate far exceeds the average auto loan interest rate of 5% for new cars and 8% for used cars.
I have heard stories of dealerships allowing cars to be purchased with a credit card in full, but it was for a business. Again, it would help if you talked to the dealership to see what payment options are available for credit card purchases.
Interest Rates and Fees
The interest rates for credit card purchases can vary depending on the credit card provider and your creditworthiness.
NOTE: Credit card interest rates range from 13% to 23% on average.
When buying a car with a credit card, as mentioned earlier, you may encounter fees such as balance transfer fees (for transferring the car purchase amount to your credit card) and cash advance fees (for using your credit card to withdraw cash to pay for the car).
Price of the Car
Depending on the price of the car, your credit card limit may only cover part of the amount. Based on your credit card debt and available credit, you might need more to cover.
Again, we recommend you pay cash for the car once you have saved up enough for the full amount. This strategy comes directly from the playbook of Dave Ramsey, a best-selling author.
However, you have enough to cover the full amount on your available credit. In that case, the dealership might refuse to process it due to the liabilities of the consumer filing a chargeback on the payment.
An auto loan or cash would be a better and safer option.
I would only consider paying for your down payment with a credit card if you could gain reward points or miles and pay it off in full. You want to make sure your credit is good for a car.
Most dealers should be ok with the down payment made on the credit card but only part of the amount.
Credit Card Spending Limits
When purchasing a car, it's important to remember your credit card spending limits that apply. These limits dictate the maximum amount you can charge for a single transaction. Similarly to an ATM bank card, there are limits to protect you from fraudulent activities.
The spending limits for different card types are as follows:
- Standard Credit Card: $5,000
- Premium Credit Card: $10,000
- Business Credit Card: $15,000
Remember that these limits can vary based on factors such as your credit history, credit score, and the terms and conditions set by the credit card issuer. Before using your credit card to purchase a car, verify your specific spending limit.
In addition, most car loan companies want direct payments made via bank transfer, not with a credit card. Some might charge a processing fee if using a credit card.
For example, American Express Gold and Platinum cards require cardholders to pay the balance in full each month. They are considered "charge" cards, not "credit" cards.
As mentioned regarding the access checks, if your credit card issuer sends a balance transfer check in your mail, you could "technically" spend it to pay your loan, but you really should not.
A credit card balance transfer acts like a personal checking account but is tied to your credit card credit limit instead.
Here are some important terms to think about before you hand over your credit card to swipe:
- Credit Limit -Your credit limit is the total amount of money you can borrow. You will want to lower your credit use or utilization to avoid a negative impact on your credit report.
- Processing Fees -Your credit limit processing fee is a one-time charge when your credit limit is increased.
- Interest Rates -The interest rate on your account is the cost of borrowing money. Compare the interest rates before deciding on the best financing option. (Hint - Cash is King)
- Reward Points - Reward points are earned every time you purchase with your card.
Is It Safe to Use Your Credit Card for Large Purchases?
Call your lender first if you're making a substantial down payment with a credit card. More than likely, a large charge will trigger a fraud alert and would delay the purchase.
What are the Best Credit Cards for Buying Cars?
Avoid your personal credit card if you are buying a car in full, and look for a business credit card or line of credit to finance the deal. As for options, US Bank and Wells Fargo offer good business credit options for those looking to leverage that.
Final Thoughts on Using Credit Card
There are many better ways to pay for a car, and using your credit card is NOT recommended by BuyCarBlog.
The traditional methods of auto loans offer better rates and longer terms. Savvy consumers willing to risk buying a car on a credit card can face a huge pitfall once the promotional offer ends and the accrued interest rate is billed.
Secondly, your credit report will indicate your credit utilization is maxed out.
On the other hand, if you were to get approved for an auto loan, your credit utilization ratio would not be impacted.
An auto loan can help build your credit as you make timely payments.
Can I buy a car or truck using my credit cards at a dealership?
Buying a car with a credit card is generally not possible or advisable. Auto dealers often do not accept credit cards or limit their use due to costly transaction fees.
Why do many auto dealers not accept credit cards for car purchases?
Dealers may not accept credit cards due to the significant processing fees they have to pay. These fees range from 1% to 3% or more, making them a considerable merchant expense.
Are there any convenience fees associated with using a credit card to buy a car?
If a dealer allows credit card payments, they may add a convenience fee to cover the processing cost, typically 2% to 4% of the amount charged. These fees can offset any rewards earned from the purchase, making it a bad decision to use a credit card.
Is getting a car loan or using a credit card to finance a car purchase better?
Car loans generally have lower interest rates than credit cards, so it is better to get a car loan if you need to borrow money for a car. Using a credit card for a car purchase can pay more interest than an auto loan.
What are some good alternatives options to using my credit card?
Alternatives to using a credit card include car financing, finding a co-signer, using cash, or doing a trade-in. Be sure to weigh your options; the right decision will save you thousands of dollars.
How can I minimize interest charges using a credit card to buy a car?
If using a credit card, it is essential to have a plan to pay it off quickly to minimize interest charges. High credit card interest charges can result in more interest than an auto loan.