For many people, buying a car out of pocket isn’t financially possible. Usually, car buyers make a down payment and then take out an auto loan to pay for the rest. Because getting a loan can be a hassle, it might be tempting to just put the entire purchase on a credit card and be done with it — but this might not be the best decision.
Keep reading to find out how to buy a car, and if you should ever do it with a credit card.
Can You Buy a Car With a Credit Card?
Even if you wanted to purchase a car with a credit card, it might be difficult to find a dealer who accepts credit card payments, according to U.S. News & World Report. This is due to a number of reasons:
- Dealerships have to pay card issuers 1 to 4 percent in fees for each transaction they process. Because a car is such a large purchase, this would be a pretty large loss in profits for the dealership, so it’s unlikely they will accept a full car payment on credit card. You will likely be able to put some or all of your down payment on a credit card, but not the entire purchase price.
- Credit card customers can easily dispute charges. If a car buyer feels they have been wronged in some way by the seller, they could dispute the charge, which might delay payment for weeks or even months.
- Cars purchased with a credit card cannot be repossessed, because credit card debt is considered unsecured debt. Cars purchased with a car loan can be repossessed, which gives the dealer extra security in case payments go unmade.
Even if you do find a dealer who will allow you to purchase a car entirely with a credit card, putting such a large charge on your plastic is not the best choice for everyone.
Who Should Consider Buying a Car With a Credit Card?
If you have the money to pay off your next credit card bill in full and plan on putting the charge on a rewards credit card, it could be worth it to buy a car with a credit card. However, keep in mind that dealerships can charge a transaction fee, so if your rewards are not greater than the transaction fee, it is not worth it to put the charge on your card. For example, if your credit card gives you 1 percent cash back on purchases, but the transaction fee is 2 percent, you’ll come out with a loss.
If you have a rewards card where the rewards outweigh any transaction fees, but you won’t be able to pay for the charge in full, consider charging only the down payment or a portion of the down payment to a credit card. This way, you’ll still get rewards points or cash back without having to worry about paying high-interest rates on your unpaid credit card balance.
Who Shouldn’t Purchase a Car With a Credit Card?
You might be tempted to purchase a car with a credit card if you can’t qualify for a traditional auto loan, but this could leave you with a substantial amount of debt if you can’t pay the credit card balance off quickly. Credit card interest rates tend to be substantial — 14% to 28% APR — which could leave you with thousands of dollars in interest to pay, according to U.S. News & World Report.
A better option is to take advantage of the special financing deals often offered by car manufacturers, which can include a multi-year, zero-percent interest offer.
Think Twice Before Buying a Car With a Credit Card
You likely won’t be able to pay for a car in full with a credit card even if you wanted to, because it poses too much risk to the dealer. A reasonable compromise is to use a credit card for the down payment and pay off the rest with another payment method.
Click through to read about the best and worst time of the year to buy a new car.
More on Credit Cards
- I Paid Off My Mortgage With a Credit Card — Here’s How
- Best Credit Cards for Fair Credit
- 7 Crucial Things You Need to Apply for a Car Loan