You can you buy a car with a credit card, but it won’t be easy and, for many buyers, it’s not a great idea. It might sound good: no forms, no credit check, just swipe your card and drive home with a new car — and with the right cards, you could get a 0% promotional interest rate for a year or more, or earn a vacation or cash back thanks to your card’s rewards program.
There also are a lot of reasons it might not be your best financial option, starting with high credit card interest rates versus the relatively low interest rates on traditional car loans these days. You also need a high credit card limit — and to win with rewards or promotions, you need to have the cash to pay off the card balance before nosebleed interest rates kick in.
Related: How to Get a Car Loan
It Might Not Be Easy
Even if you can swing it, it won’t be easy to find a dealer willing to let you buy a car with a credit card.
“Since cars are big transactions, many dealers refuse to accept credit cards because doing so would cost them a lot of money,” says Ted Rossman, senior industry analyst at personal finance site Bankrate and at CreditCards.com. That’s because of the credit card processing fee that costs merchants about 2.3% of the sale. That fee cuts the dealer’s profit and goes to the card issuer, card network (such as Visa) and dealer’s bank.
However, even if a dealer won’t take a card for the whole transaction, many dealers will take a card for some or all of a down payment. That would let you take advantage of card rewards on at least part of the deal.
One surprise to watch out for is a separate card surcharge added to the final price.
“Most states allow merchants to tack on a fee for credit card transactions,” warns Rossman. “They’re not particularly common in most retail settings, but because cars are expensive, they’re more likely to pop up at car dealers. If they tack on a 3% surcharge to cover their costs, that could well outweigh the [card] rewards you were trying to earn.”
Know Your Limits
If you’re not in the proverbial 1%, your limit on a single card might not be high enough even for a used car. Rossman says that American Bankers Association data shows the average credit card limit for super-prime customers (someone with really good credit) is $11,770 and the average declines from there for lower credit scores. You could apply for an increase in your card’s limit, or use cash or a separate car loan for the balance. You also could try to use more than one card to cover the whole amount, but that might be more difficult.
“While you could potentially split your car purchase across several different cards if the dealer lets you, that’s a further hurdle,” he says.
You’ll also want to notify your card issuer ahead of time because an unusually large purchase could trip a fraud alert and cause the card to be declined.
Know You Can Pay
To make using a credit card for a car purchase worth it, you need to have the cash available to pay off the card immediately or have it on hand when the 0% interest period expires. You come out ahead with your card benefits only if you can pay the balance before the card’s regular interest rates kick in.
“You should only try to buy a car with a credit card if you’re confident you can pay the credit card bill in full before interest accrues,” says Rossman. “The average credit card charges almost 16%. Don’t try to earn 1% or 2% cash back or airline miles if you’re going to pay 16% in interest.”
If you run into trouble, you could try refinancing the remaining debt into a car loan. Again, though, you’ll pay interest that gives back some of what you gained in rewards.
Protect Your Credit
Obviously, falling behind on credit card payments will ding your credit score. But even with regular payments, carrying a big balance that stretches the limits of your credit still could hurt your rating. That’s because your “credit utilization ratio” — the credit you’re using divided by credit available to you — is an important factor in your score, says Rossman. To avoid that, he says, you need to pay it off.
“If the dealer will let you pay with a credit card, I’d suggest only doing so if you can pay that credit card off right away — basically treating this as the same as a cash transaction but reaping the credit card rewards.”
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There Can Be Advantages
Given all these caveats, it might seem that paying with a card is never a good idea. But there are ways to come out ahead, you just have to plan to be sure you have or can get a card that maximizes the rewards you are after.
If you’re looking to use some free money for a while, there are generous 0% promotion periods on many new cards (if you qualify, of course). As always, you need the money on hand to pay before the balance reverts your regular rate. You also might have an existing card that offers 0% balance transfers for some period — but check for transfer fees, which could be 3% of the transfer.
More appealing to card rewards junkies could be using the car purchase to rack up a big chunk of points, miles or cash back. Most credit cards don’t limit your rewards, says Rossman. “Sometimes certain bonus categories are capped … but cars aren’t a typical bonus category.”
Buying a car with a credit card could unlock lucrative rewards, but it’s not for every shopper. You’ll have to do some research to find a dealer who will allow you to pay in full on the credit card. And to come out ahead, you need to have the cash to pay off the balance before you run up high interest or damage your credit score.
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