Should You Buy a Car With a Credit Card?
The benefits of using a card may not measure up.
Many consumers get auto loans to buy cars, and some have enough cash on hand to cover the cost in full before driving off the lot. Still others can’t use cash or a loan and have to consider buying a car with a credit card.
Using a card to pay for your vehicle comes with certain considerations to keep in mind before moving forward, as it’s typically not the best option.
How to Buy a Car With a Credit Card
Not all dealerships accept credit cards as a form of payment. For those that do, you’ll use your card to make the purchase just like you would anywhere else. However, you’ll want to keep the following things in mind:
- The credit card should have a high credit limit. Unless you plan to make a hefty down payment, you will need a card with a generous amount of available credit to make the purchase. Be mindful that the purchase price is just a portion of what you’ll be paying for. You may be responsible for tax, title, and processing fees.
- Try to use a card with an extended 0% purchase APR period. If you’re able to pay off the card within the promotional APR period, you will save a bundle. But that isn’t the case with an auto loan - you will pay interest until the loan is paid in full as it’s automatically rolled into the monthly payments.
- Cards that offer rewards are most ideal. It’s even better if the credit card you intend to use offers the best of both worlds—a 0% purchase APR promotional period and rewards. You can avoid interest on the purchase (if the car is paid off before the promotional period expires) and earn rewards points or cash back. If it’s the latter, you can apply the cash back to the credit card balance as a statement credit.
- Don’t disclose your plans to pay with a credit card until the negotiation process is complete. Dealerships know that credit cards are sometimes accompanied by steep processing fees. So, they may not be willing to budge on the purchase price if they know you want to pay with a credit card beforehand, or they may make you pay for the processing fee.
Before you make your purchase, call your credit card issuer and let them know your plans. If you don’t, your purchase will likely trigger a fraud alert and might be blocked until you contact your issuer.
Can You Use a Credit Card for a Down Payment?
Some dealerships may prohibit buying a car with a credit card but permit you to use your card to cover the down payment. Others may have restrictions on how much of the down payment you can pay with a credit card.
Before you go to the dealership to make your purchase, contact the finance department directly and ask the question without disclosing your name, email, or phone number. This allows you to negotiate more effectively should you decide to purchase a car from that dealership.
If you decide to use a credit card for a down payment, it’s best to use a card with a promotional purchase APR period. Also, only charge what you can afford to pay off within the interest-free window to avoid paying interest after the promotional period expires.
Auto Manufacturer Credit Cards
While you aren’t limited to using an auto manufacturer’s credit card to make your purchase, doing so could earn you rewards rates that exceed general rewards cards. Some manufacturer card options include:
|Card||Introductory Offer||APR||0% Purchase APR||Rewards|
|BMW Precision Card||7,500 bonus points when you spend $1,000 within the first 90 days||15.24%-24.24%||None||5 points per $1 spent at BMW
3 points per $1 spent on gas
2 points per $1 spend on dining
1.5 points per dollar spent on all other purchases
|GM BuyPower Card||None||15.24%-24.24%||0% introductory APR on purchases for 12 months||5% in rewards on the first $5,000 spent every year, then 2% unlimited Earnings on all other purchases|
|Lexus Pursuits Visa||5,000 bonus points when you spend $500 (outside of Lexus dealerships) within the first 90 days||13.99%, 17.99% and 22.99%||None||5 points per $1 spent at Lexus dealerships
2 points per $1 spent on dining, gas, and entertainment
1 point per $1 spent on all other purchases
|Toyota Rewards Visa||5,000 bonus points when you spend $500 (outside of Toyota dealerships) within the first 90 days||13.99%, 17.99% and 22.99%||None||5 points per $1 spent at Toyota dealerships
2 points per $1 spent on dining, gas and entertainment
1 point per $1 spent on all other purchases
Depending on the credit limit you receive, these cards can be used to make a down payment or purchase a vehicle. They also offer rewards you can redeem to save on future maintenance service, repairs, and accessories for your vehicle.
Check with your credit card issuer to see if it has any relationships with brick-and-mortar or online dealerships. For example, American Express cardholders are entitled to cardmember pricing and post-purchase perks when they charge at least $2,000 of their vehicle purchase through TrueCar.com.
Pros of Buying a Car With a Credit Card
There are two main benefits worth noting when you purchase a car with a credit card.
The Title Is in Your Name
When you buy a car with an auto loan, the lender places a lien (claim to ownership) on the title. If you don’t follow through on your payments, the lender can repossess your car because it is the lienholder. However, when you pay with a credit card, the title is in your name; there is no lien.
It may take several weeks for the dealership to process your car’s registration and title.
You Can Earn Rewards on Your Purchase
Many credit cards offer cash back, points, or miles when you make purchases. A card with a 1.5% cash-back rate can earn you $150 back on a $10,000 vehicle purchase.
Cons of Buying a Car With a Credit Card
While getting your title upon purchase is a great perk, there are some distinct disadvantages to paying for a car with your credit card:
Negative Credit Score Impact
Your credit utilization, or percentage of your credit limit in use, accounts for 30% of your credit score. Ideally, you want to keep this percentage at 30% or below to prevent your credit score from dropping. That means not charging more than $6,000 on a card with a $20,000 limit. If you do exceed the 30% but pay off the card before your monthly statement closes, it probably won’t impact your credit score. This can be problematic when purchasing a car with a credit card since the average cost of a used car can max out a credit card.
Auto and Personal Loans Offer Lower Interest Rates
At the time of publication, the average credit card interest rate hovered between 20% and 21.30% in 2020, per data collected by The Balance. By contrast, the national average rates on used and new car loans from July to September 2020 was between 3.32% and 3.50% for credit unions and 4.99% and 5.44% for banks, depending on the loan term, according to the National Credit Union Administration. And an unsecured fixed-rate loan with a 36-month term from July to September had an average interest rate of 9.28% and 10.21% for credit unions and banks, respectively.
0% APR Offers Don’t Last Forever
The idea of buying a car with a 0% APR credit card may sound appealing. However, most 0% offers end after 12 to 15 months, so you’ll pay interest on any balance you have after that. Considering that the average price of a used car in 2020 was more than $21,000, there’s a good chance you’ll have a sizable balance left at the end of your zero-interest period.
Once your regular interest rate kicks in, it’s likely to be anywhere from two to six times higher than an auto loan if your credit score is at least 620. Also, your credit card issuer requires you to make minimum payments only, which means you could carry your balance for far longer (and pay more interest) than a car loan if you don’t come up with a plan to pay off your balance quickly.
- Some dealerships and online marketplaces allow you to use a credit card to pay for your down payment or vehicle purchase.
- Buying a car with a credit card puts the title in your name rather than the name of an auto-loan lender.
- Cards from auto manufacturers can give you significant rewards on your down payment or purchase.
- Your credit card’s APR will likely be higher than the rate you’d get for an auto loan.
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