Can You Buy A Car With A Credit Card?

Buying a car is a major expense for any budget. With such a big purchase on the line, you might be wondering if you can buy a car with a credit card.

The good news is that yes, it is possible to purchase a car with a credit card. Although most dealers will have limitations on using a credit card, you may be able to at least make the down payment using plastic. But this path may not be the best financial route for everyone.

Let’s explore the advantages and disadvantages of buying a car with a credit card.

When purchasing a car, there is a lot of research involved. After all, you want to ensure you are getting exactly what you want at the right price for your budget.

As a part of that extensive research, you should weigh the pros and cons of buying a car with a credit card for your unique situation. To help you with this big decision, we’ve laid out the pros and cons below.

Pros

As with every big financial decision, there are advantages and disadvantages of buying a car with a credit card. Let’s start by exploring the pros.

• Credit card rewards: It’s a good way to build up rewards points on your credit card. For credit card reward aficionados, the thought of making such a major purchase without enjoying the spending perks that their credit cards offer is downright painful. With that, many seek to use a credit card to pay for their car purchase.
• Outright ownership of the vehicle: Paying for your car in full will help get your name on the vehicle title quicker. If you are seeking full ownership of your vehicle, this is a fast route.
• Interest-free opportunities available through credit card companies: It’s a way to take advantage of interest-free payment periods through your credit card company. But you’ll need to be careful about running out of room in the interest-free period.

Cons

Of course, there are some drawbacks to buying a car, or making a down payment, with your credit card. Here’s what you should be aware of.

• May be difficult to find a dealer that is willing to accept credit cards: Some dealerships place a price limit on credit cards to avoid surcharge fees.
• Credit card fees: Many credit cards have additional fees, such as high interest rates and other finance charges. Depending on your card, you may be paying more for the vehicle than it’s actually worth.
• The high credit utilization may negatively impact your credit score: Your credit score can suffer if you’re using more than 30% of your total line of credit.
• Lackluster credit card rewards: Rewards are a big incentive for customers to consider purchasing a car with a credit card. But the credit card rewards may not be large enough to make the purchase worth it. Take the time to run the numbers to ensure that the costs of making this purchase with a credit card are worth the rewards.
• Limited credit line: A car is a massive purchase. You may not have enough available credit on your card to make a large purchase.

The thought of buying a car with a credit card may be enticing. But don’t let the allure of this unique financing decision allow you to overlook the drawbacks of the plan.

Whether you want to purchase a car with your credit card outright or just use your credit card for the down payment, some best practices can be employed for a smooth experience.

Keep in mind that this is not the traditional way of purchasing a vehicle. With that, you may have to do some legwork to make this deal happen in your town.

Step 1. Ask the dealership if they accept credit card payments

Unfortunately, not all dealerships are open to accepting a credit card. In some cases, the dealership may not accept credit cards outright. In others, the dealership may only allow you to use a credit card for a certain dollar amount of your purchase.

In the price negotiation process, ask the dealership if they accept credit card payments. If yes, ask if there are any dealer fees attached to this decision. In the case of extra fees, take the time to ensure that it still makes financial sense for you to move forward.

Step 2. Notify your credit card company first to avoid flagging suspicious activity

It’s not every day that you make a purchase totaling thousands of dollars on your credit card. With that, your credit card company may think that this major purchase represents suspicious activity.

You can avoid the hassle that comes along with a suspicious activity flag by notifying your credit card company about this purchase ahead of time. Since you likely won’t be making an impulse buy for a vehicle, this shouldn’t be a problem.

Step 3. Wait for a zero-interest promotional period with your credit card company

Typically, there are two reasons why someone would choose to buy a car with a credit card.

First, you may have the cash available to buy the car or make a down payment without a credit card. But you want to maximize your credit card rewards points. In that case, you can skip the process of waiting for a zero-interest promotional period because you have the cash on hand to pay off your credit card balance immediately.

But some may not have the cash available to make a down payment or cover the car’s purchase. In that case, wait for a zero-interest promotional period with the credit card company of your choice.

A zero-interest promotional period provides some breathing room. With it, you’ll have the chance to make headway on paying down this debt before the notoriously high interest rates typically associated with credit cards starts to build a mountain of interest charges on your initial purchase.

Step 4. Consider paying off your other credit cards with an eye to credit utilization

Credit utilization is an important factor in your credit score. If you want to ensure that your credit score doesn’t take too big of a hit from this purchase, consider paying off all other credit cards to ensure you’re not using more than 30% of your total credit line after purchasing the vehicle.

Of course, this is easier said than done. But it is important to keep your credit utilization in mind as you move forward with this major purchase.

Want to learn more about why your credit utilization ratio matters? Check out our full length resource on Rocket HQ^SM.

Step 5. Keep your budget in mind

Before you swipe or tap your card, ensure you have enough money to make the monthly payments. You don’t want this purchase to put too much pressure on your budget.

If it looks like the payments will be too much on your budget, consider different financing solutions or an entirely different vehicle. It might be helpful to explore your options in the used car market to stretch your dollars further.

A credit card is not the only way to pay for a vehicle. And realistically, a credit card is not the most practical financial solution for this major purchase.

A few other options include:

• Manufacturer credit cards: Car manufacturers are starting to offer affinity cards to provide rewards to put towards your auto purchase. The rewards on your spending can add up to big savings on your next car purchase.
• Low-interest auto loans from banks or credit unions: Auto loans typically come with significantly lower interest rates than credit cards. With that, you might be able to save thousands on interest payments by choosing an auto loan from a reputable financial institution.
• Wait for a 0% down special promotion at the dealership: If you don’t have a down payment on hand, then a dealership special could be worth waiting for. In some cases, dealerships will over a 0% special to entice new buyers.
• Save for a down payment over time: Although it can be a challenge, it is possible to save for a down payment over time. With this strategy, you’ll pay less in interest.

A car is a major expense that you probably cannot avoid. As you work out the financing for this car purchase, consider less expensive models or used cars to help reduce the impact on your wallet.

Want to learn more about personal finance strategies? Take advantage of the free resources offered by Rocket HQ.