Can You Buy a Car With a Credit Card?

Are you shopping for a new or used car? If so, there’s a good chance you’ll need to finance this purchase. There are several financing options available, such as an auto loan or personal loan—but what about your credit card? Can you buy a car with a credit card?

The simple answer is yes, you probably could find a car dealership willing to accept a credit card payment. The real question you may want to ask yourself is, “Should I make such a large purchase with a credit card?”

Let’s take a closer look at the advantages and disadvantages of purchasing a car with a credit card so you can decide if it’s the right option for you.

Can You Buy a Car With a Credit Card?

Buying a new car with a credit card is possible, but it’s not going to be easy.

First, not all car dealerships accept credit card payments. This is likely due to the high processing fees credit card payments incur. These fees can range between 1.5% and 3.5%. For example, if you purchase a car for $20,000, these processing fees can range from $300 to $700.

Even if you do find a dealership willing to take a credit card payment, you may be responsible for paying these processing fees. The dealership may also limit the amount you can pay with your credit card. For instance, you may be able to use your credit card for a down payment but not to pay for the full value of the car.

Secondly, not all credit card companies allow cardholders to make a large purchase like this. It’s important to contact your credit card company first to better understand its policies.

Finally, even if the car dealership and credit card company permit this type of purchase, you have to have enough available credit. If you go over your credit limit, you could incur additional fees and higher interest rates—or  the credit card company may  decide to deny the transaction altogether.

Things to Consider

Before you grab your credit card and head to the car dealership, there are a few things you should know about making this type of purchase.

Limited Options

As mentioned above, not all car dealers and credit card companies allow this type of purchase. This could significantly decrease your options when you go looking for a car. You’ll be limited to finding a car at one of these dealerships.

Negative Impact on Your Credit Score

Adding a large purchase, such as a car, to your credit card balance can drastically increase your credit utilization. Because your credit utilization rate accounts for up to 30% of your overall FICO® credit score, any large purchase could cause your credit health to take a hit.

In fact, most experts agree that you should try to keep your credit utilization rate at or below 30%. It’s unlikely that adding a large purchase, such as a car, will keep your credit utilization low enough to meet this recommendation.

Your lower credit could impact your ability to get other credit cards, take out a personal loan, or even secure an apartment. This is why it’s important to understand the risks involved before buying a car with a credit card.

Lack of Available Credit

One of the main reasons people get a credit card is to have additional funds available in case of an emergency. Using a majority of these funds to purchase a car means you’ll have less available if you do face an emergency. Be sure to carefully consider this factor and the lasting effects it may have before making a large purchase.

Higher Interest Rates

Before you make any financing decisions, you should always compare interest rates. While your specific rates will vary based on your income and credit score, you’ll likely pay higher interest rates when making a credit card purchase than you would with an auto loan.

For instance, the average APR for credit cards is 27.89%, while average car loan rates range from 7.19% to 11.93%. Even if you have bad credit, you’re likely to find better interest rates through a car loan versus a credit card.

Even if your credit card comes with a 0% APR introductory rate, you still need to be careful. If you can’t pay the entire balance within the initial time frame, higher interest rates will be applied to your balance.

Ability to Make Payments

No matter what lending option you choose when purchasing a new car, it’s crucial to make sure you can afford the monthly payments. Before you even start shopping for a car, set a realistic budget to determine how much you can afford. Be sure to take the interest rate and any other additional fees and costs into account, such as insurance, registration, and processing fees.

Advantages of Buying a Car With a Credit Card

There is a potential advantage of buying a car with a credit card to consider. If you have a rewards card, making such a large purchase could help you earn cash back or travel points quickly. This could be very beneficial, especially if your rewards card has a welcome bonus that requires you to spend a certain amount in a short period of time.

The idea of earning big rewards with just one purchase may sound great, but you have to consider other factors. For instance, does your credit card charge an annual fee? Unless your rewards exceed the annual fee, it may not be worth it. You also need to factor in the higher interest rates.

Alternative Lending Options

Before using your credit card to purchase a new car, be sure to explore your other options, including:

• Getting an auto loan. You’ll likely find better interest rates with an auto loan through a bank or credit union. Additionally, you’ll probably get a higher credit limit with a car loan than by relying on your available credit card balance.
• Getting a cosigner. If you’re having trouble securing an auto loan due to your credit or lack of credit, you can consider using a cosigner. If your cosigner has good credit, it may help you get a car. There are some risks involved for the cosigner, so consider this option carefully.
• Using your savings. If you have an emergency fund set up or available savings, it may be worthwhile to use this money to purchase a new car. Then, you can keep your credit card to use for any emergencies that may arise while you’re rebuilding your savings.
• Doing a trade-in. If you don’t have money in your savings account to use as a down payment, trading in your current car may provide the funds you need. The more money you can put down on a new car, the better chance you have of being approved for a car loan and keeping monthly payments within your budget.

Before you use your credit card to buy a car, find out what your credit score is. This can help you determine what lending options are available to you. If your score is too low to secure an auto loan with reasonable interest rates, you can take steps to repair and rebuild your credit.

Use Credit.com’s Free Credit Score to find out your credit score and get started today.

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