Can You Buy a Car With a Credit Card?
Many car dealers won’t accept credit cards because they’re on the hook for credit card processing fees, which can run anywhere from 1.5% to 3%.
January 26, 2022
You’ve chosen the perfect new or used car and the only thing left for you to do is decide how you want to pay for it. You could:
Finance your purchase with a bank
Finance it through the dealer
Pay in cash
But can you buy a car with a credit card? In certain circumstances, yes. But, not all auto dealers allow you to pay with a card, and if they do, there are several factors you should consider before whipping out your plastic.
Does your dealer accept credit cards?
Whether you can buy a car with a credit card will depend on the dealer. Call them ahead of time to learn about their credit card policy. Experts recommend calling anonymously so that sales reps don’t give you a hard time during price negotiations. It may be prudent not to mention that you want to pay with a credit card until you’ve negotiated a price in case a credit card sale causes hesitation from the dealer.
The dealer may allow you to charge some or all of the purchase price; however, before you pay, make sure that your credit card limit is high enough to make the purchase. What’s more, if you don’t make big purchases, it can be wise to alert your bank, so they don’t flag the sale as suspicious activity, holding up the transaction.
Why dealers don’t accept cards
Many car dealers don’t accept credit cards because they’re on the hook for credit card processing fees, which can run anywhere from 1.5% to 3%. While that may not seem like a lot, it can add up to hundreds of dollars on multi-thousand dollar purchases. As a result, auto dealers may prioritize customers who aren’t using credit, especially if there is high demand in the auto market.
Benefits of buying a car with a credit card
Perhaps the number one reason for using a credit card to buy a car is if you have a rewards card and you’re trying to earn points. A five-figure purchase can go a long way toward defraying the costs of your next vacation.
However, credit card interest rates are typically very high. So ideally, if you’re buying a car with your credit card, you also have the cash to pay off your bill immediately. Otherwise, you’ll be stuck with a loan with interest rates that are much higher than the average auto loan or personal loan.
You can avoid this issue to a certain extent by buying your car with a card that has a 0% APR introductory offer. Be sure the offer extends to new purchases and not just balance transfers. During the introductory period, which could last up to 18 months, you’ll owe no interest on your purchase. However, you’ll still want to pay off your credit card bill before the introductory period ends. At the end of this period, interest rates typically jump.
Drawbacks of buying a card with a credit card
Even if you can buy a car with a credit card, it’s not always prudent to do so. If you don’t have the money to pay off your credit card bill in full, you can quickly get sucked into a cycle of debt. Credit card interest rates are high, and when you don’t pay off your bill, those high rates cause your debt to snowball. Avoid this scenario and look into other financing options if you don’t have a lot of cash on hand.
Convenience fees are another pitfall. If a dealership allows credit cards, it’ll be on the hook for processing fees. The dealership may pass on the cost of those fees by charging you a convenience fee, which could range from 2% to 4%. These fees could more than offset the benefits you receive from using a rewards card in the first place.
Can you make a car down payment on a credit card?
Like financing a car purchase, a downpayment on a credit card will depend on the dealership’s policies. Some dealers will allow it, even if they don’t allow you to charge the vehicle’s full price.
That said, the same considerations apply as you decide if you’ll charge your down payment. Be sure the dealer won’t charge any fees that would negate the benefits of using your card. And make sure you have a plan for paying off the debt that allows you to save money, especially compared with other financing options, such as a 0% APR rewards card that you pay off before the introductory period ends.
Can you make a car payment with a credit card?
Whether or not you can make payments on an auto loan with your credit card will depend on your lender. Some only allow you to pay your bill using certain methods, like fund transfers or checks. Others may allow credit cards but might require you to use a payment processing company to tack on their fees.
In general, paying your auto loan with a credit card should be avoided if at all possible. After all, you’re essentially trading a relatively low-cost loan for high-cost credit card debt if you can’t pay off your credit card bill that month.
If you find yourself struggling to come up with the cash to pay your auto loan each month, consider refinancing the loan. Ideally, refinancing will lower your monthly bill by lowering your interest rate or extending your loan terms. Extending your term may make your bill more manageable in the short term, but be aware that you may pay more in interest over the long run.
Other options for financing a car
If you can’t buy a car using your credit card, or the costs outweigh the benefits, you may consider financing your purchase through your dealer or another lender.
Auto loans are secured loans that use your vehicle as collateral. If you fail to make your payments, your lender can repossess the vehicle and sell it to recoup some of the loan.
You can apply directly to a bank or credit union to get a car loan, and they’ll often give you preapproval with a quote and letter of commitment that you can take to the dealer. You can also secure financing through your dealer, in which case they’ll do a lot of the legwork for you, filling out applications and sending them to multiple lenders.
Dealers may negotiate a higher interest rate with you than the lender offers. They’ll pocket the difference as compensation for the time they spent helping you secure your loan.
You may also consider using a personal loan to buy your car. Personal loans are more flexible than auto loans and you can use them for any purpose. They aren’t secured and don’t use your car as collateral. However, they may charge a higher interest rate to cover this extra risk.
Whenever you consider using credit cards to make a big purchase, it’s critical to weigh your options to avoid taking on more debt than you can afford. If you struggle with credit card debt, Tally† offers a lower-interest line of credit that can help you organize your debt and pay it down faster.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.