Can you buy a car with a credit card? Pros and cons

profileErin Bruehl | November 17, 2021
can-you-buy-a-car-with-a-credit-card-pros-and-cons

The pros of buying a car with a credit card include taking immediate ownership of the vehicle, and taking advantage of credit reward programs for big purchases. However, the exorbitant interest rates that come with such a purchase can offset the benefits.

Can I Buy a Car With a Credit Card?

You can buy a car with a credit card, but there are pros and cons to this method of making a purchase. If your credit limit is high enough, you can legally and freely make a down payment, or even complete the entire purchase, with your available credit.

However, the bigger question is if this is a good idea. Many dealerships impose a dollar limit on credit card payments. This is because merchants are charged a fee for any credit transactions, and those fees account for a small percentage of the total sale. The purchase of a car (whether new or used) would be considered a large purchase, so the dealer might end up paying upwards of thousands of dollars on the credit card fees.

This is also why some dealers will impose a 3% surcharge on credit card purchases, in order to offset the costs they have to incur.

Different dealerships have different limits on how much customers can put on their cards for car purchases. Generally, most restrict credit card charges to no more than $10,000.

Instant Ownership

There are a number of reasons why someone would want to buy a vehicle with their credit card. One is that doing so puts the title immediately in the customer’s name, and they get instant ownership of the car, taking the lienholder out of the equation. Some credit card companies might tempt customers with reward offers and benefits for making big purchases.

Even if there are good reasons for buying a car with a credit card, there are always some things to keep in mind before you put the car on your card.

Financing Rates

The first is to obviously make sure that you can actually pay the bill. Too many people have charged a car to their card without appropriately planning for how they will manage the purchase.

An example of this is if a buyer is tempted to pay for a car with their card because of a rewards program from their credit card company. Many creditors offer deals with big incentives to their customers, like 1% cash back on all purchases.

But the catch is that while car financing rates can be low, credit card interest rates are not. Even if your credit card company offers you amazing benefits, you will have to pay off your balance immediately. If you take too long, any rewards you get from the program would be canceled out by the credit card’s interest rate.

An exception to this would be using a new card that has a 0% introductory APR. This will temporarily save you from interest fees, but it is still risky. If you don’t pay off your balance before the end of the initial period, you will have to pay interest. This can be difficult enough on its own, but it will also wipe out any of the benefits you might have received from buying the car with the credit card.

Credit Limits

If you want to buy a car with your credit card, or even just make a significant down payment, you will have to have a high credit limit. If your credit limit is too low for this kind of transaction, you will have to call your bank or your credit card company to request a credit limit increase. If your account is in good standing, you should get the go-ahead to put the car (or the down payment) on your card.

If you have multiple cards from the same issuer, they might be willing to transfer some of the credit limits across cards. For example, two cards with a $5,000 limit each might be converted into one card having an $8,000 limit and the other having a $2,000 cap.

Credit Utilization

Something to keep in mind before you buy a car with a credit card is your credit utilization, the percent of your credit limit that is actively being used. If 30% or more of your credit limit is currently being used, this can hurt your credit score. For example, if there is a $10,000 limit on your card, you should not spend more than $3,000 of that. Going over that limit will lower your credit rating.

When you make the decision to buy a car with your credit card — either making the full purchase or a down payment — you should notify your creditor first. Let them know that you’re about to charge a substantial amount of money to your card, so they don’t assume your card has been stolen and someone is making fraudulent purchases. If your bank or credit institution is caught off guard, they will likely issue a fraud alert and freeze the card.

The Pros and Cons of Buying a Car on a Card

Are the pros and cons of buying a car with a credit card worth it? To answer that question, it is important to think about your financial situation. There are perks to using a card, like immediate ownership. But there is a risk of overspending and paying so much in credit card interest that whatever benefits you might have obtained by charging your card are not worth it. If you do not fully appraise the costs, you might put yourself in financial jeopardy.

References

Should I Pay for a Car With a Credit Card? (September 2021). CNBC.

Can You Buy a Car With a Credit Card? Here’s What You Need to Know. (July 2021). TIME.

0 Percent APR Car Deals: Are They Worth It? (September 2021). Forbes.

Can I Buy a Car With a Credit Card? (June 2017). US News & World Report.

Yes, You Can Buy a Car With a Credit Card and Earn Tons of Points. Here's How I Did It. (January 2021). Money.

Pros and Cons of Buying a Car With a Credit Card. (October 2020). Fox Business.

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