Though buying a car with a credit card seems like a savvy idea to reap whatever rewards your credit provider offers, there are only limited circumstances where it's doable and makes sense. Using a card for a vehicle purchase is ultimately dependent on factors like dealership policies and your own financial situation, so it's important to understand how these variables affect both the general possibility and the potential payoff.
Not All Dealerships Accept Credit Cards
If you weren’t already aware, merchants who accept credit cards must pay a processing fee that typically ranges between 1 and 4 percent, and dealers are no exception. Additionally, credit card debt is considered unsecured, which means the credit provider can’t repossess a car that incurred the debt like a traditional auto-loan lender can for failed payments. So, some dealerships simply don’t accept credit cards in any capacity due to the profit they’d stand to lose and the risk they’d be taking in the case of a default.
On the other hand, most auto dealerships will allow you to pay a limited portion of a vehicle’s cost, such as the first $5,000 of your down payment, using credit. When given this option, you should first find out whether the dealer is going to add an additional charge to cover the processing fee. If so, compare that extra charge to the value of the reward you stand to gain, whether it’s points, cash back or airline miles, to see if the added expense still makes using credit a sound decision.
A small number of dealerships will accept credit as payment for the entire cost of a vehicle. However, don’t count on this being an option unless you have a credit card affiliated with the vehicle’s automaker or you’re enrolled in a vehicle purchasing program through your credit card provider.
Use Credit Only If You Have Sufficient Funds
If you’re still interested in paying a portion or the whole cost of your car purchase with credit, you must also take the time to understand how that will impact you financially. Obviously, you’ll need to ensure you have the appropriate credit limit to take on the charge or pursue a balance transfer at zero percent interest to compensate for any discrepancies. You’ll also need to check that you have the liquid funds to pay off the entire charge before your bill’s due date or before the promotional rate of your balance transfer ends.
The reason for this is simple: Regular credit card interest rates are much higher than auto loan interest rates. If you need an extended timeframe to pay off the charge, you’ll be paying far more in interest than you would if you opted to finance the car instead.
So, Should You Buy a Car With a Credit Card?
You should buy a car with a credit card only if you find a dealership that accepts credit and you can fully pay off the charged amount before interest kicks in. Otherwise, you’ll find yourself paying quite a bit of money in interest for rewards that are significantly inferior in value to their added cost.