Buying A Car With Credit Card: Understanding the Pros & Cons

Purchasing a car is a significant financial commitment that demands thoughtful planning and careful evaluation. While the conventional method of purchasing a car involves taking out a loan or paying in cash, some people wonder if they can take a more unconventional route—paying for their car with a credit card. Can you buy a car with a credit card? The short answer is yes, but there are several factors you need to consider before going down that path. 

Can You Put a Car on Your Credit Card?

In theory, most car dealerships are capable of accepting credit card payments, but whether they allow it depends on their policies. Car dealerships often face significant fees when accepting credit cards for large purchases like cars. These fees, ranging from 1.5% to 3.5%, can quickly add up, making it less appealing for dealerships to accept credit card payments for full vehicle purchases.

In some cases, car dealerships may only allow credit cards for a portion of the car’s price, like the down payment, or for smaller amounts. If you’re hoping to use your card for the entire transaction, you may need to shop around to find a dealership willing to accommodate this request. Before you even think about swiping your card, make sure to negotiate the car price and inquire about the dealership’s credit card policies.

How to Buy a Car with a Credit Card: What You Need to Know

If you’re determined to pay for a car with your credit card, there are a few key steps to take to ensure it works smoothly. Here’s how to buy a car with a credit card without running into unnecessary obstacles:

1. Negotiate the Price First

Before you mention using a credit card as your payment method, make sure you’ve agreed on the price of the car. The dealer will likely focus on the total cost, including any fees, taxes, and financing options. If you bring up the credit card option early in the conversation, the dealership might raise the price or impose additional fees.

2. Check Your Credit Limit

Using a credit card to buy a car means you need a substantial credit limit. Unless you have a high-limit card like the Chase Sapphire Reserve® or The Platinum Card® from American Express, your card’s credit limit may not be sufficient to cover the full cost of the vehicle. Even with a high-limit card, paying for an entire car on a credit card might not be the most financially sound decision.

If your credit limit is too low, you can consider other options like a personal loan or an auto loan to cover the balance that exceeds your credit limit.

3. Look for 0% APR Credit Cards

If you don’t have the full funds to pay off the car right away, using a credit card with a 0% APR introductory offer could be a wise choice. Some credit cards, such as the U.S. Bank Visa® Platinum Card, offer 0% APR for a set period (e.g., the first 18 billing cycles). This allows you to pay off the balance over time without racking up interest, helping you avoid extra costs.

Cards like the Chase Freedom Unlimited® also offer 0% interest on new purchases for 15 months, allowing you to make the purchase and pay off the balance over time without incurring additional interest charges.

4. Confirm the Payment Terms with the Dealer

Not all dealerships will allow you to pay for the car with a credit card, and those that do might only allow a partial payment or impose a convenience fee to offset the processing fees. Make sure to confirm the dealer’s policies and clarify if any additional fees will apply to your payment method.

The Pros of Paying for a Car with a Credit Card

There are a few advantages to using a credit card to pay for a car, but these benefits should be weighed against the potential drawbacks.

1. Earning Rewards

A key benefit of paying for a car with a credit card is the chance to earn rewards like cashback, travel points, or airline miles. For instance, the Citi® Double Cash Card gives 2% cash back on all purchases (1% when you buy, 1% when you pay), so a $30,000 car purchase could earn you $600 in rewards.

If you’re open to getting new credit cards, many issuers provide hefty sign-up bonuses. For example, the Chase Sapphire Preferred® Card gives 60,000 points (worth $750 in travel) after you spend $4,000 within the first 3 months. This can be a great way to boost your travel rewards or enjoy other benefits.

2. Flexible Financing with 0% APR Cards

Using a 0% APR credit card for a car purchase can help spread the cost over several months without paying any interest. This allows you to maintain more financial flexibility and avoid the burden of high interest rates typically associated with auto loans.

The Cons of Paying for a Car with a Credit Card

While the idea of paying for a car with a credit card may sound appealing, there are several significant disadvantages that can quickly negate any potential benefits.

1. High Transaction Fees

As mentioned earlier, car dealerships typically charge credit card processing fees, which are usually between 1.5% and 3.5%. If you’re buying a $30,000 car, these fees can add up to $1,050. Some dealerships may even impose a “convenience fee” for allowing you to pay with a credit card, which can make your purchase more expensive.

2. Impact on Your Credit Score

Your credit utilization ratio, which shows how much of your available credit you’re using, is a key factor in your credit score. If you use your credit card to pay for a car and max it out, your credit utilization could soar, hurting your score. It’s best to keep your utilization below 30%. Using a significant portion of your credit for a car purchase can lower your score, especially if you don’t pay it off quickly.

3. High-Interest Rates

Unless you have a card with a 0% introductory APR, credit cards typically carry high interest rates, often upwards of 20% or more. Financing a car purchase with a credit card and carrying the balance over time can lead to overwhelming interest charges, which will end up costing you much more than an auto loan with a much lower interest rate.

4. The Hassle of Approval

Large transactions like buying a car might get flagged by your credit card issuer as suspicious activity. Even if your credit limit is high enough to cover the purchase, you may need to contact your issuer to ensure that the transaction is approved. Some credit cards also have spending limits or restrictions for specific types of transactions, which can make it more difficult to get approval for such a large purchase.

You Can Buy A Car Using a Credit Card, But…

While it’s possible to buy a car with a credit card, it’s not always the best choice. The potential for high transaction fees, the risk of increasing your credit utilization, and the burden of high interest rates make this option tricky for many. If you’re not able to pay off the balance quickly, or if you don’t have a 0% APR card, you might want to consider other financing options, such as auto loans or personal loans, that offer more favorable terms. Always carefully weigh the costs and benefits to make the best decision for your financial situation.