Can You Buy a Car With a Credit Card?
For many people, buying a car in cash isn’t financially possible. And even if it is, it may not be the best idea to sink all your emergency savings into a vehicle. That’s why car buyers typically 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 is this the best decision?
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. This is due to a number of reasons:
Why the Dealership Might Not Accept Credit Card Payments
- Transaction fees. Dealerships have to pay card issuers 1.5% to 3.5% in fees or 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 a 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.
- Charge disputes. 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. And if your credit card sides with you, they may not get paid at all.
- Unsecured debt. 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, however, 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 may not be 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, it could be worth it to buy a car with a credit card. However, keep in mind that dealerships can charge a transaction fee.
Is it legal to charge customers a credit card transaction fee?
Surprisingly, merchants — including car dealers — can kick down the credit card fees they’re responsible for. Ironically, it’s often called a “convenience fee.”. Five states prohibit merchants from tacking on a credit card surcharge. The states are Colorado, Connecticut, Kansas, Maine and Massachusetts.
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% cash back on purchases, but the transaction fee is 2%, 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 — 12% to 24% APR — which could leave you with thousands of dollars in interest to pay.
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.
Which Credit Card Should You Use?
If you’ve weighed the pros and cons of “can you buy a car with a credit card” and the decision to do it still works for you, some credit cards are better candidates than others.
High-Limit Credit Card
Charging a car to the highest limit credit card in your wallet will ensure the transaction goes through. In addition, using a higher-limit card doesn’t ding your credit score as badly if you’re not close to maxing the card out. That’s because credit agencies score you based on credit utilization — your credit limit available vs. your card balance. A $10,000 purchase on a credit card with a $10,000 limit is worse for your credit score than a $15,000 purchase on a card with a $35,000 credit limit.
Credit Cards With an Introductory No-APR Offer
Many cards sweeten the sign-up deal by offering new cardholders an interest-free period for a set amount of time. You’ll typically find 0% APR for 12 to 18 months. If you’re disciplined, you could buy a car with a credit card and make no interest payments for the offer’s term. Be sure to pay the car off in full before the introductory period is up. Otherwise, the card reverts to its regular interest rate for the remaining balance due.
Rewards Credit Card
There are two main types of rewards credit cards: cash back and travel rewards. Making a large purchase using a cash back rewards card may put some money back into your wallet. If the dealer you’re negotiating with drives a hard bargain, the 1% or more you can get back as cash from your credit card issuer can help you find some savings from the vehicle purchase. As mentioned already, be sure you’re not being charged a higher card transaction fee by the dealer than the cash-back rewards you’d earn.
As for a travel rewards credit card, why not earn points or miles from purchasing a vehicle that you could apply towards free travel? Most rewards credit cards award you points for every dollar you spend that you can use later to cover the cost of plane tickets, a hotel stay and more.
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.
Gabrielle Olya contributed to the reporting for this article.
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- USA Today. 2021. "5 States Where It’s Illegal To Charge Credit Card Processing Fees."
- Forbes. 2021. "What Is A Good Credit Card APR?"
- Experian. 2020. "How To Qualify for a 0% Apr Car Loan."
- Experian. "What Is a Credit Utilization Rate?"