Getting a car is one of the most important things most people will ever buy. Since the average price of a new car in 2023 will be close to $5,000, more and more people are wondering if they can just use a credit card to pay for it. I looked into it to see if it was true that you could use a credit card to buy a car. Here’s what I learned.
It Depends on the Dealer
The short answer is – maybe. Most car lots do take major credit cards as payment, but many of them have rules that say buyers can’t put the whole purchase price on a card. Why? Because companies that take credit cards charge fees to stores that do. These “merchant fees” are typically 1. 5% to 3. 5% of the transaction amount.
That’s between $750 and $1,750 in fees for a $50,000 car on the lot. You can see why they might not want to give you a credit card: they could lose a lot of money that way.
However, some dealerships may allow you to charge part of the price, like a down payment, on a card. Others might let you charge the whole thing if you agree to cover the merchant fees yourself. So it really comes down to the individual dealer’s policies. Your best bet is to ask ahead of time before getting your heart set on a certain car.
Should You Buy a Car With a Credit Card?
Just because a dealer will accept a credit card doesn’t necessarily mean you should use one. You need to think about the interest rates and terms on your card.
Since 2020, the average credit card interest rate is now over 2020%. Putting a $25,000 used car on a credit card with 20% interest would mean it would take you over 2 years to pay off the full purchase price even if you made $1,000 payments every month. And you’d rack up $7,000 in interest charges!.
Compare that to the average used car loan rate of around 11%. The lower interest rate saves you thousands over the long run. Plus, financing through the dealer directly can sometimes qualify you for extra incentives and discounts.
However, if you have a card with an exceptionally low promotional rate or generous rewards program, using it strategically could make sense in some cases. Just be sure to read all the fine print so you know what you’re getting into!
Be Aware of Credit Limits and Utilization
Before you decide to fund a car with plastic, double check your credit limit. Charging a large purchase can negatively impact your credit score by driving up your “utilization ratio” – the percentage of your total available credit that you’re using.
You may need to ask your card issuer to increase your limit first if it’s not high enough to cover the full vehicle cost. And be prepared for potential score drops until you pay down the balance.
Other Options to Consider
Using a traditional auto loan is still the most common and practical way to finance a car purchase for most people. But you have other alternatives too, like:
- Leasing – Lower monthly payments, though restrictions apply
- Cash – Save on interest by paying the full amount upfront
- Dealer financing – Manufacturer incentives may help reduce price
- Cosigner – Improve your chances of approval if your credit is poor
No matter how you choose to pay, just be sure you can truly afford the monthly payments. And make them on time to start building your credit history. That will open up more possibilities next time you’re ready to buy a new set of wheels!
The Bottom Line
While it is possible to buy a car with a credit card in some cases, it’s generally not the best option due to higher interest rates. Carefully consider all your financing choices, and the pros and cons of each, before deciding which method is right for your situation. If using a card, be cautious of the impacts on your credit score and your ability to comfortably pay off the balance. With smart planning, you can drive off the lot in your new ride without derailing your finances.
Step 3: Consider the potential risks
Many of the top cash back credit cards let you earn rewards for each dollar you spend and secure a 0 percent intro APR on purchases for a limited time, but these offers don’t last forever. If you plan to pay your card off before your introductory offer ends, but you fall behind, you could be stuck paying off thousands of dollars at an incredibly high interest rate.
There’s also potential risk to your credit score when you run up a credit card balance to buy a car. Your credit utilization — the amount you owe in relation to your credit limit — makes up 30 percent of your FICO score. So, if the cost of the car is most or all of your credit limit, your credit score could drop.
Finally, don’t forget credit options are limited if you have poor credit or fair credit. The top credit card offers for rewards or 0 percent offers will be out of reach for you if you don’t have at least “good” credit, which typically includes any FICO score of 670 or above.
Can I buy a car with a credit card?
Yes, you can technically buy a car with a credit card, but before doing so, you should have a plan.
Since credit cards typically charge much higher interest rates than auto loans — an average of 20.12 percent at the time of writing — you’ll only want to charge a car to your credit card if you know how you’ll pay down the balance.
For example, it could make sense to pay for a car with a credit card if you have the cash in the bank to cover the purchase. That way, you can earn big rewards, then pay your balance in full before any interest accrues.
Charging a car purchase to your credit card can also make sense if your credit card has a 0 percent introductory APR offer. This would let you pay off your car without interest for a limited time and potentially earn rewards along the way. But depending on the cost of the car, you’ll need to make some large monthly payments. When your card’s introductory offer ends, you’ll be stuck paying your credit card’s ongoing variable interest rate.
I Bought A Car with a Credit Card
FAQ
Will car dealers accept credit cards?
While pretty much all car dealers accept major credit cards for many transactions, they may have policies that prohibit a buyer from putting the full purchase price of a car on a credit card. The main reason is because credit card companies charge fees to businesses, including car dealerships, that accept them.
Can you buy a vehicle with a credit card?
A lot of car lots let people pay for a car or at least a part of it with a credit card. You can choose to use the card for the down payment, additional fees, or service contracts. But you should know the risks, restrictions, and bad things about using a credit card to pay for this.
Is it smart to pay your car with a credit card?
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Can you swipe your credit card to buy a car?
A dealership willing to accept a credit card for a large amount may make you pay the transaction processing fee, which might be 3% or more. Using a credit card to buy a car isn’t the best decision because annual percentage rates are more than 22%, so consider other options to avoid negative financial impact.