Perhaps a sales event is happening at a dealership and you are able to negotiate a great deal on your dream car. If you close the deal, you can drive away in it today. Theres only one little problem: you dont have 20% for the down payment. You do, however, have a credit card in your pocket and you could put down that 20% with a simple swipe of the card. Can you use the credit card as a down payment on the car?
The answer is, yes, technically you can use your credit card as a down payment. Most car dealerships will not turn down your money whether you give it to them with a swipe of your credit card, or in jars full of pennies. The real question you should be asking is, should you use a credit card as a down payment. And the answer to that question is: no, not unless you like paying twice as much interest on your down payment as you will be on your auto loan.
Look at it this way: the interest on a car loan is generally between 3-20%. Your credit card, on the other hand, can charge between 15-35% interest. Credit card interest is almost always higher than auto loan interest because an auto loan is a secured loan, whereas the credit card is considered unsecured credit. For you to use a credit card as a down payment, in that case, makes no sense economically because it can end up costing you up to 20% more over the life of the loan. At the same time, your car will be depreciating in value to the point where even if you sold the car, you might not make enough money back to pay off the down payment, much less the loan!
If you absolutely must have the car, you might be better off putting no money down and taking a loan for the entire amount of the car, if you can qualify for that type of auto loan. If you cant, or cant afford the payments on this type of loan, this may be a sign that you should rethink the entire purchase. Its almost always better to walk away from a deal you cant afford than getting in over your head on an impulse buy.
