A question that many car buyers ask is: can you buy a car with a credit card? The answer is yes, but it's not as simple as swiping your credit card and driving off in your new auto.
Stay with us to find out more on this topic!
Can You Buy a Car With a Credit Card?
When purchasing a brand-new auto, there are a few things to consider, such as:
- Do car dealers accept credit cards?
- Can you pay with a credit card?
Some car dealerships allow you to pay the entire amount or just a percentage of the total amount, also known as a downpayment. In contrast, others don’t accept credit cards at all.
There's a reason why some car dealerships reject credit cards. It’s because they need to pay a hefty credit card processing fee. And to avoid such hefty fees, they usually accept other forms of payment that we’ll look at in a bit if you are unsure whether you can buy a car with a credit card.
Related: Can You Buy a House With a Credit Card?
Check With Your Credit Card Provider
You must check with your credit card provider first before using a credit card to buy a car. Some credit card companies may not allow this type of purchase, or they may charge additional fees for doing so. Make sure you understand all the potential costs involved before making a decision.
High Credit Limit
Can you pay a car payment with a credit card? You'll need a fair or high credit limit to purchase a car with your credit card. It can be helpful if you're buying an expensive car or one that requires a large down payment. With a high credit limit, you can purchase without worrying about being approved for financing.
If you have a low credit limit, you might want to contact the bank — you can request a credit limit increase. You might be granted a credit limit increase if your credit card shows great outcomes.
Convenience Fees
Another potential cost to consider is convenience fees. Some car dealerships may charge a credit card fee, so be sure to ask about this before your purchase.
These fees are typically 2% to 4% of the total amount. So, when you think about it thoroughly, paying with a credit card or even putting a car down payment on a credit card when you need to pay convenience fees might not be the best decision. You may be able to avoid paying a convenience fee by using another form of payment, such as cash or a check.
Costly Transaction Fees
Another potential downside of using a credit card to buy a car is that you may be charged transaction fees. These fees can add up, so it's important to factor them into your decision.
You may be able to avoid paying transaction fees by using a different form of payment, such as cash or a check. If you decide to pay with a credit card and if auto dealers accept credit cards, expect to pay more money with a credit card than what you would have paid in cash.
Read more: Debit vs Credit Card
Is It a Good Idea to Buy a Car With a Credit Card?
If you ask yourself, “Can I buy a car with a credit card?” you need to know that there's no simple answer to this question. It depends on a wide array of factors, which we will look at in a second.
Credit Utilization Ratio
One factor to consider is your credit utilization ratio. It’s the amount of your available credit you can use at any given time. Generally, it's best to keep your credit utilization rate below 30%. Why? Because a higher credit utilization ratio can hurt your credit score.
0% Intro APR
Another factor to consider is whether or not you can take advantage of a 0% intro APR offer. This offer is typically available from 12 to 21 months, and it can be a great way to finance a large purchase like a car without paying any interest. Of course, you'll need to make sure you can pay off the balance before the intro period expires, or you'll be stuck paying interest at the regular APR, which is usually relatively high.
High Credit Card Interest Charges
If you are unsure about the question, ”Can you make a car payment with a credit card?” another thing to keep in mind is that credit cards usually have pretty high interest rates. So if you do decide to finance your car with a credit card, you'll want to be sure you can pay off the balance fairly quickly to avoid paying a lot of interest. If you think you might not have the resources to pay with your credit card, you could pay more than if you got an auto loan.
Rewards Potential
If you have a rewards credit card, you may be able to earn points or cash back on your purchase. Remember that the interest rate on your card will probably be higher than the rewards you earn. So it's important to weigh the pros and cons before making a decision.
You should use a rewards credit card only if you earn enough rewards to cover the card's annual charge and can pay off the card right away. If not, fees and interest charges may outweigh the rewards on the card.
Manufacturer Credit Cards
Some carmakers, including BMW, Ford, Honda, and Nissan, allow you to pay for a car with a credit card using their branded credit cards. These credit cards earn rewards with each purchase, which can be later redeemed toward the purchase of an auto. But you need to spend plenty of money to get a new car or a percentage of one.
Read more: What to Do With Old Credit Cards
Alternatives to Using a Credit Card to Buy a Car
If you are worried about whether you can buy a car with a credit card or are unsure about your finances, it’s always better to consider alternatives rather than rely entirely on your credit card.
Car Financing
Usually, you'll pay a lot more in interest if you use your credit card rather than get an auto loan. Therefore, car financing is not a bad idea at all.
Car financing is when you take out a loan from a bank or other lender to pay for the cost of the car. You'll then make monthly payments to repay the loan. You can even use an online calculator to check how much money you'll need to pay each month and your interest.
If you have bad credit but still want to get an auto loan, don't worry. There are several lenders who might be willing to work with you.
Read more: Car Leasing Impacts on Credit Score
Co-Signer
If you are unsure whether you can pay for your car with a credit card or get an auto loan, you can always consider the option of getting a co-signer. A co-signer is someone who agrees to sign the loan with you and make payments if you can't. Also, having a co-signer with a good credit score might help you get lower interest rates on auto loans.
Read more: Does Being a Guarantor Affect Your Credit?
Cash
Sometimes a better option is to buy a car with cash rather than a credit card, even if it means you cannot get the auto of your dreams. Saving up for a less expensive vehicle seems better than putting your financial health in danger by buying a car you cannot afford.
Do a Trade-in
Finally, you could do a trade-in. If you already have a car but want a new one, you could always go for trading the older one and use the trade-in value for a down payment on a new vehicle.
Bottom Line
Hopefully, this article tackled the central question: “Can you buy a car with a credit card?”
If you decide to use a credit card, do your research so that you understand all the potential costs and rewards. If you are unsure whether a credit card is a suitable option, consider other choices, such as car financing, cash, or a trade-in.
