Buying a Car with a Credit Card: Pros and Cons
7 MIN READ
Published July 28, 2023 | Updated December 16, 2023
You may be able to use a credit card to buy a car, but not the entire amount. Many dealers don’t accept credit cards at all, while some will allow you to use them for the down payment. Read on to learn more about the benefits and downsides of using your credit card, the costs, and the process involved.
Do Car Dealers Accept Credit Cards?
Not all car dealers accept credit cards. Some do, but they may only accept it for the down payment. In most cases, borrowers take on an auto loan to purchase a new car because most people don’t have the cash to pay for the purchase outright. If you are unable to get a loan and want to use a credit card to fund your purchase, there are several things you need to know before you consider this option.
Yes, It’s Possible to Buy a Car with a Credit Card
The short answer is that buying a car with a credit card is possible. Some car dealerships accept credit cards for the down payment, while others may accept credit cards for the full price of the vehicle. Some dealers don’t accept them at all.
Dealers have to pay a credit card processing fee of 1.3% to 3.5% for the transaction. This means that for a $15,000 car, the dealership will need to pay $450 for the transaction if the processing fee is 3%. The costs can add up quickly, so most dealerships prefer other modes of payment, such as ACH transfers, cashier’s checks, personal checks, money orders, or cash.
Benefits of Buying a Car with a Credit Card
Buying a car with a credit card makes sense in the right circumstances, especially if you have the potential to earn rewards. Here are the main benefits of doing so:
- You may be able to save a considerable amount of money in interest charges if you have a 0% APR credit card.
- It may be easier for you to earn a large welcome offer if you purchase a car with your credit card to meet the spending requirements.
- If you have cash on hand to purchase the car outright, using your credit card will allow you to earn a lot of points without having to pay interest charges.
Risks of Buying a Car with a Credit Card
While there are a few benefits of using your credit card, there are also several expensive fees that you should be aware of. Here are the main risks of funding your purchase with a credit card.
- The dealer might charge a higher price for the car to cover the costs of the transaction fee.
- There may be a convenience fee of 2% to 3% for using a credit card.
- If you’re not able to pay off your credit card balance, you’ll be subject to costly interest charges. This can quickly make your credit card debt unmanageable.
Is It a Good Idea to Buy a Car with a Credit Card?
So, should you buy a car with a credit card? It makes sense only under certain circumstances, as listed below:
- You have a high credit limit and a low credit utilization ratio.
- You have a 0% introductory APR on your credit card.
- You’re sure that you’ll be able to clear off your credit card balance before it starts accruing interest.
- You have the possibility to earn a large welcome bonus or enough extra rewards points to offset the costs of interest charges and fees.
Teresa Dodson, a debt relief expert and the founder of Greenbacks Consulting, cautions against this tactic. “In my opinion, buying or using a credit card for a down payment on a car is not a wise decision,” Dodson shares. “Even if you do this with an introductory credit card offer of 0%, that clock is ticking for a year or two before the high interest rate kicks in.”
How to Use a Credit Card to Buy a Car
After weighing the pros and cons, if you feel that it is the right decision for you, here are the steps to follow to use your credit card at the dealership.
Choose the Right Credit Card
Whether you want to use an existing rewards credit card or get a new credit card for the purchase, the first thing you’ll need to do is to check with the credit card company if the purchase will go through. You’ll need to notify the issuer in advance, even if you have a high credit limit, to ensure the transaction doesn’t get flagged.
If you have good credit, choose a credit card issuer that has a large welcome bonus, no annual fee, 0% APR, or offers good rewards to offset the costs of making the large purchase. You’ll also have to ensure that the available credit limit is high enough so the transaction doesn’t exceed your credit limit and cost you fees. Shop around for the best credit cards and compare credit card interest rates before you choose one for car financing.
Negotiate with the Seller
This part may be a little challenging because most dealerships will prefer borrowers to use alternate forms of payment instead of credit cards. You’ll need to find a dealership that accepts credit cards. Discuss your options with the salesperson. It also doesn’t hurt to negotiate to bring down the purchase price of the car since you’ll be paying the dealer outright through your credit card.
Pay Off the Balance Quickly
You’ll need a plan to pay off your credit card debt at the earliest to minimize your costs. If you’re using a 0% APR credit card, you’ll have to pay off your balance during that period to avoid interest charges. Calculate the monthly payment you’ll need to make to clear off your credit card balance to see if you can afford it.
If you feel you can afford to pay that much each month, it makes sense to reap the benefits of a credit card. If not, you’ll be left paying a high-interest rate on the remaining balance on the card.
Car Dealerships That Accept Credit Card Payments
Before buying a car with a credit card, you’ll need to find dealerships that accept this payment method. From local dealerships to large national dealerships, there may be many options to explore.
National Car Dealerships That Accept Credit Cards
National car dealerships typically have multiple locations throughout the country. Most of these dealerships also offer the ability to purchase online. Most well-known national car dealerships such as AutoNation, Carvana, and CarMax do not accept credit cards as a mode of payment, even for down payments.
EchoPark Automotive is one dealership that accepts credit cards when you are purchasing online. Keep in mind that they do not accept credit cards for down payments over $500.
Local Car Dealerships That Accept Credit Cards
You may have better luck finding a local car dealership that accepts credit cards. Check the websites of local dealerships to see if they accept credit cards. You can also visit a dealership and talk to a salesperson to see their current payment options. Depending on the price of the vehicle and the down payment, you may be able to use your credit card for at least a portion of the purchase.
Alternatives to Using a Credit Card to Buy a Car
Buying a car with a credit card is not the best choice unless you’re sure you can pay off the full balance before it is due. There are other alternatives that offer lower interest charges and have fewer risks when compared to carrying high balances on your credit cards. Consider these alternatives instead:
- Apply for financing. Even if you have less-than-perfect credit, you may be able to qualify for bad credit car loans. Shop around to find the most competitive interest rates before you finalize a deal.
- Use a co-signer if you have poor credit. If you have a friend or family member that has better credit, you may be able to secure financing at a better rate. Family credit management techniques can also help improve your chances of attaining a vehicle.
- If you can’t qualify for a car loan due to bad credit and do not have a co-signer, your best bet would be to pay for your purchase with cash. Purchase a cheaper used car instead of a new car that you can pay for in cash.
- Make your next car cheaper by trading in your current car. Trade-in may cover your down payment and reduce your expenses.
- Use auto-branded credit cards. These are credit cards offered by vehicle manufacturers that offer generous sign-up bonuses. You can accumulate points and then redeem them when you purchase a vehicle from that brand.
Conclusion: Is Buying a Car with a Credit Card Right for You?
Weigh the pros and cons of buying a car with a credit card to see if it’s right for you. Unless you have the opportunity to earn a hefty welcome bonus, cash back, excellent rewards, or a 0% APR credit card, it is usually not a good idea. You’ll also need to have a plan to clear your credit card balance before the end of the intro APR to minimize the interest charges.
After the end of the introductory period, if you’re left with a large balance on your credit card, it may be difficult to pay off your debt. Fortunately, TurboDebt can help you find the right debt relief method to clear your unsecured debt. Get in touch with us today for a free consultation and to talk to our team to find the best debt relief option for your financial situation.