Cars are expensive.
Ordinarily, they’re expensive enough that consumers resort to loans to pay them off over time.
Particularly ambitious buyers, however, may pay for their cars with cash, so they own them from the get-go and avoid going into debt.
But somewhere in between those crowds are the folks who buy cars with credit cards.
Yes, it’s possible. But is it the right thing to do? That depends heavily on your credit and your overall financial health.
Can You Buy a Car With a Credit Card?
The short answer to this common question is yes, you can buy a car with a credit card.
But you won’t be able to with every dealer, and even then, it’ll likely depend on the cost of the car itself, among other things.
Some Car Dealers Won’t Accept Credit Cards…
It might not seem logical to reject a customer who’s ready to commit to buying a car, even if it’s with a credit card. Money is money, right?
Unfortunately, the reality is more complex.
Like any merchant that accepts credit or debit card payments, car dealers who take credit cards must pay processing fees for each card-based transaction. These fees usually hover between 1.5–3%, but with cars priced in the thousands of dollars, that amounts to a few hundred bucks the dealer wouldn’t have to pay otherwise (although, like most businesses, dealers probably factor transaction fees into their business plans).
So if a salesman knows he can sell a car at a certain price to someone who’s not going to use a credit card, he might simply brush you off, because you’re far from the ideal customer. This is especially true when you consider how many buyers finance through car dealerships, which earns dealers extra money on top of the car’s purchase price.
…But Some Dealerships Will
Despite all the reasons why dealers might not accept credit cards, many do, because they want to sell their cars.
It depends, though.
Some dealers accept credit for only a portion of a car’s price, such as the down payment (or even just a portion of the down payment).
Dealerships that accept credit cards for the entire purchase price of a vehicle may specialize in selling used cars, where profit margins are typically much higher, and overall prices (read: processing fees) tend to be lower.
But there are no hard-and-fast rules here. The right buyer may be able to fund a brand-new car with an Amex Platinum or any card with a high credit limit, while others could be turned away altogether.
It all comes down to you, the car you want to buy, and the dealership you’re planning to patronize.
When Should You Buy a Car With a Credit Card?
“Your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.”
It’s a familiar principle, even if you’re not trying to bring dinosaurs back to life.
However, there are a couple instances where it might be a valuable decision because of the credit card rewards — points, miles, or cash back — that you can earn while you’re at it. In other cases you may just want some time to pay at no interest.
You Have the Cash to Pay Your Balance in Full
If you have enough cash to cover the price of the car, you could just use the cash. Or, you could use your credit card and pay the balance in full immediately, likely earning thousands of rewards points in the process without ever paying a penny of interest.
Think of it as a nice little discount for choosing to use your credit card on something you’d planned to purchase anyway.
The most difficult part of this approach is building strong enough credit that your card limits can accommodate the full price of a vehicle.
You’re Planning to Use a 0% APR Offer
If you’re not ready to tackle a several-thousand-dollar balance right off the bat, use a credit card with a 0% intro APR offer to pay for the car.
This lets you pay off your balance over an extended period of time without interest fees. To figure out the monthly payment you’ll have to make in order to knock out your balance before the offer expires, just divide your balance by the number of months you have to pay it off. Consider dividing by one less month, to make sure you pay it off on time.
You should have no trouble finding a solid rewards card with a lengthy 0% intro APR. But even if you’re dead set on using a specific rewards card that doesn’t have an introductory APR offer, you can still use your card of choice and delay payments by transferring the balance to a card with a long 0% balance transfer APR period and no annual fee.
There are a few important points to consider before heading down this route.
First, credit card companies usually charge a fee for balance transfers, which could negate the rewards you’re trying to earn in the first place. This isn’t too big a deal, though, as there are ways to either avoid this fee or offset its negative impact.
One option is to simply stick with a credit card that has a 0% purchase APR offer so you don’t have to transfer your balance in the first place. If that doesn’t work for you, however, try to find a balance transfer card with no transfer fee. Just take note that fee-free balance transfers are usually only offered for a limited time after you’re approved.
The other option? Negotiate a price that takes this fee into account before you let the dealer know you’re using a card (more on that later).
Then, there’s the utilization issue. Credit utilization refers to the ratio of your overall revolving credit balances to your overall limits, and it accounts for 30% of your FICO scores.
This means that if the price of the car takes up too much of your available credit, it could temporarily damage your credit scores. So this method probably isn’t right for buyers with bad credit and low income. Look into regular auto loans if that sounds like you.
You may be able to avoid damaging your personal credit by using a business credit card to buy a car. Business cards are usually available to individuals who sell any goods or services whatsoever, and most of these cards only report activity to business credit bureaus (unless they’re in delinquent status).
But putting non-business expenses on business cards is technically against the terms of most credit card issuers. The terms of the Ink Business Preferred℠ Credit Card (Review), for example, include “By becoming a Visa Business Card cardmember, you agree that the card is being used only for business purposes…” so you may only want to consider this if you’re using the car for your business.
How Do You Buy a Car With a Credit Card?
Buying a car with a credit card is a bit trickier than using traditional financing methods, but as we mentioned earlier, it’s both possible and, under the right circumstances, quite valuable.
There are a few steps you should take to make the process as smooth as possible.
Before You Buy
Take Stock of Your Financial Situation
To buy a car with a credit card, you’ll first need high enough credit limits that you can charge the full price of a car.
Credit limits are usually dependent on both your income and credit scores, including any additional financial obligations under your name like loans and credit card balances. If your available credit isn’t high enough and you don’t immediately need the car, spend time building your credit scores, and then request a limit increase from your credit card issuer (if you don’t receive one automatically). You could also consider charging the cost to multiple credit cards.
Plus, remember that you’ll need the right credit card(s) if you want to delay the payments. Any credit card with an adequate purchase APR offer could do the trick. Or, if you’re intent on using a rewards card with no APR offer, you’ll need that plus a balance transfer card to pay off the car interest-free.
Consider contacting your issuer to inform them of the upcoming purchase, too. It’s possible for an atypically large purchase to trip fraud protection measures, which may lead to a declined transaction.
Credit cards aside, be sure to consider the amount of cash you can put toward the car now and/or your ability to pay for the car over time, depending on which payment method you’re using.
If you’re not certain that you’ll be able to pay for the car before an intro APR period ends, then you’re probably better off not using a credit card. Their interest rates tend to be much higher than the auto loans you’re offered through banks or dealership financing.
You could always keep transferring your balance to another 0% APR card as your intro periods run out, but that would mean dealing with another balance transfer fee for every card involved, which could be costly in the long run. If you’d like to use this approach, compare how much you’d spend on several balance transfers to the amount of interest you’d be paying on an auto loan. It might be worth it.
There’s never any guarantee that you’ll be approved for another credit card, though, so you’ll have to tread carefully if you’re hoping to use more than one balance transfer offer. Strong credit scores should help increase your approval odds, but even with top-notch credit, you can’t be sure.
Research the Car You’re Buying
This one’s a bit of a no-brainer. Don’t charge into the sale without checking up on the prices you can expect for the car you’re after.
The more knowledgeable you are, the better equipped you are to negotiate.
Ask Your Dealer About Credit Cards After You’ve Negotiated a Price
You can always do a bit of online research to see whether a dealership accepts credit cards, but you shouldn’t reveal that you’re using one until you’ve settled on a price. If you mention that you’re planning to use a card beforehand, the dealer will consider this during negotiations, or he may balk at selling you the car altogether.
When You’re Buying
Use the Credit Card With the Most Useful Rewards
When paying for the car, use the credit card that you find the most valuable.
If you’re planning a trip in the near future, you may want to use a co-branded airline card that earns you travel rewards. Or if you just applied for a new credit card with a big signup bonus, use it to buy the car and knock out the spending requirement in one shot.
Flat-rate rewards cards are another option. They can offer 1.5% or 2% back for every purchase, and often provide 0% purchase APR offers, which would keep you from having to pay a balance transfer fee if you’re planning to delay repayment.
With a 0% Purchase APR: Make Monthly Payments
As mentioned above, calculate your required monthly payment to pay off the card before your intro period runs out. Set up automatic payments for that amount.
If you still have a balance when your intro period runs out, consider transferring it to another card with a 0% balance transfer offer. Look for a card without transfer fees — your selection will be limited, but most people will probably qualify for one.
Without a 0% Purchase APR: Pay It Off or Transfer the Balance Immediately
If you’ve charged the car to a credit card without a 0% purchase rate, act fast to avoid interest charges.
The first way to do this is simple: Pay off the balance in full.
The second is to transfer it to a card with a zero-interest APR offer as outlined above. If this is your method of choice, you’ve hopefully already negotiated the balance transfer fee off the price of the car.
Just make sure you’re equipped to pay down the full balance before the intro period ends and the card’s normal interest rates kick in, so you’re not left floundering in debt.
In the grand scheme of things, using a credit card for a car is just like swiping your card for any large purchase.
We still recommend it only if you have either the cash to pay it off or a plan to do so without incurring interest or damaging your credit scores.
So, no, it’s not for everyone.
But you can do it, and it could be a valuable decision.
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