Can You Buy a Car with a Credit Card?
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Written by
Josephine Nesbit
It’s possible to buy a car with a credit card. While it may seem more convenient rather than taking out a car loan and you can use this opportunity to maximize your credit card’s reward points, it may not be the best financial decision.
Here’s what you need to know.
Understanding the Basics of Buying a Car
Once you find a car with all of the features you want or need, it’s time to figure out how you’ll pay for the car.
If you aren’t paying in cash, you can get financing through the dealership, but a better option is to shop around and get preapproved for an auto loan with the lowest annual percentage rate.
Along with your preapproval, you’ll also need to save for a down payment – about 10% to 20% of the car’s total value – before heading to the dealership.
If you don’t have enough saved for a down payment, many dealerships also accept credit cards.
Do Car Dealerships Accept Credit Cards?
Most car dealerships will allow you to make your down payment with a credit card, but many won’t allow you to pay for the entire price of the car or may limit credit card transactions to a certain amount.
If they do accept a full payment, the dealership may require you to pay the credit card processing fee, which is usually about 3% of the total transaction. If so, they typically add this fee to the total amount owed.
How Credit Card Payments Work in Car Dealerships
There are some financial considerations to keep in mind if you plan to use a credit card to purchase a car.
Even if the dealership accepts credit card payments, they may not allow you to put the entire purchase on the card or require that you pay the processing fee. Fees may vary, but they’re typically 3% of the transaction. For example, this means you may be liable for an additional $1,350 when purchasing a $45,000 car.
Your credit card company may also have restrictions on large transactions. Some credit cards have daily spending limits, and your credit limit may not be high enough to purchase a car. If you make a purchase that’s outside of your normal spending pattern, the issuer could flag the transaction and prevent you from charging the car to your card.
Benefits of Paying for a Car with a Credit Card
There are several benefits to paying for a car with a credit card, such as:
1. Credit Card Rewards
Making a large purchase is a good way to maximize your credit card rewards by earning points to put towards travel or cash back on purchases.
If you opened a new credit card account, this is also a good way to quickly reach the spending requirement for a new card member welcome offer.
2. Purchase Protection
Credit cards usually come with purchase protection that covers theft and damage for a specified time.
3. Convenience
When you don’t have enough savings, a credit card allows you to cover big or small purchases.
4. Immediate Purchase
You don’t need to spend months saving to purchase a vehicle. By using a credit card, you can go out and immediately purchase a car.
5. Potential for 0% APR Offers
If you open up a new credit card account to buy a car, you can potentially benefit from 0% APR offers. This allows you to save money on interest as you pay down the principal.
Drawbacks of Using a Credit Card to Buy a Car
Using a credit card to buy a car has drawbacks. Here are some to consider.
1. High Interest Rates
Credit card interest rates are typically much higher than with car loans. If you don’t pay off the balance before the 0% APR period ends, you’ll end up paying much more in interest.
2. Limited Credit Limit
If your credit limit isn’t high enough, you will need to ask your credit card issuer for a credit limit increase. This may result in a hard inquiry, which could temporarily impact your credit score, and the request could be rejected.
3. Possible Fees
If the dealership allows you to use a credit card to buy a car, you may have to cover credit card processing fees. These fees can be hundreds or even thousands of dollars, depending on the transaction amount.
4. Impact on Credit Score
You could negatively impact your credit score when you increase your credit balance with a car purchase. Your credit utilization – the percentage of total credit used from the total credit available – makes up a large chunk of your FICO credit score. If the purchase takes up most of your credit limit, your credit score could go down.
5. Not Always Accepted
Not all dealerships will allow you to buy a car with a credit card.
| Pros | Cons |
|---|---|
| Earn credit card rewards | High interest rates |
| Purchase protection | Limited credit limit |
| Convenience | Possible fees |
| Immediate purchase | Impact on credit score |
| Potential for 0% APR offers | Not always accepted |
Can You Use a Credit Card for a Car Loan Down Payment?
Yes, you can use a credit card to make a down payment on a car. This option is much more common than using a credit card for a full payment.
This is only a good option for some buyers if they can pay off the entire account balance before they begin to accrue interest. If they can’t afford to pay the balance in full in a short period of time, using their credit card for a down payment could be costly.
Alternatives to Buying a Car with a Credit Card
There are other ways to buy a car. Here are some options.
- Auto loan: You can get a car loan through your bank or credit union or find a lender online. This gives you the chance to compare rates to find the best deal and save time at the dealership, but it also means you might encounter stricter credit requirements.
- Personal loans: Personal loans are a convenient way to purchase a car. However, you may pay higher interest rates, and there’s often a limit to how much you can borrow.
- Home equity loans: A home equity loan offers lower interest rates than most other types of loans, but it also uses your home as collateral. If you fall behind on your payments, the lender can foreclose on your home.
- Dealer financing: Financing a car through a dealership can help buyers who may not qualify for financing elsewhere, but it does come with higher interest rates and less control over the loan offers you receive.
Impact of Buying a Car with a Credit Card on Your Financial Health
Purchasing a car on credit can affect your finances. You could pay more interest than with most auto loans or other financing options, which can lead to substantial interest charges if the balance isn’t paid off quickly. Adding a large purchase to your credit card can impact your credit utilization and increase your debt-to-income ratio, potentially lowering your credit score.
One of the best ways to avoid negative impacts on your financial health is to have a repayment plan and pay off the balance in full as quickly as possible. Make more than the minimum payment and utilize 0% APR offers to save money on interest.
The Bottom Line
In some cases, you can buy a car with a credit card or at least make your down payment, but it’s not the best option for every buyer. Using a credit card allows you to immediately purchase a car and earn credit card rewards. The downside is that using a credit card to make a full purchase isn’t accepted everywhere. There may also be high interest rates and fees to consider.
No matter what financing or payment option you choose, always keep your budget in mind and see how various strategies will affect your financial health.
Frequently Asked Questions
Can I buy a car with a credit card?
It’s possible to buy a car with a credit card. In most cases, you can use a credit card to make a down payment, but not all dealerships will allow buyers to make a full purchase.
Do all car dealerships take credit cards?
Not all dealerships take credit cards, and those that do may have different policies. Some might only accept credit cards for a down payment, and others may not accept them at all.
Can I use a credit card for a car down payment?
Many car dealerships accept credit cards for a car down payment. Even so, there are risks to consider, such as higher interest rates, potential fees and the impact on your credit score.
What’s the best way to pay for a car using a credit card?
The best way to pay for a car using a credit card is with a 0% introductory APR credit card. This allows you to make payments toward your principal balance and save money on interest.
Is it worth using a credit card to buy a car?
It may be worth using a credit card to buy a car if you can use a credit card with a 0% introductory APR and maximize the card’s rewards. It may not be a good idea if you can’t pay off the balance quickly or have a low credit limit.
