Can You Pay For A Car With A Credit Card?

how to buy a car with a credit card

If you’re planning to buy a new car, you may be curious about alternative ways of paying for it. One of the most common questions people interested in alternative automotive financing come up with is whether or not they can pay for a car with a credit cards.

While buying a car on a credit card can be convenient and allow you to rack up some serious reward or travel points, it isn’t always the best way to go. Here’s what you need to know about paying for your next ride by swiping your credit card.

Do Car Dealerships Even Accept Credit Cards?

While many car buyers don’t even realize it, the majority of dealerships do have the ability to process payments via credit card. However, there’s usually a limit on how much of your car purchase you’ll be allowed to pay for with your card. In most cases, this limit is around $5,000.

Dealers place these limits on transactions to avoid the high processing fees charged by credit card companies.

While this is the general rule, there are some dealerships out there that will let you put your entire transaction on your card.

If you plan to finance your vehicle purchase with your credit card, it’s important to ask the dealership you’re buying from about its credit policy in advance.

Which Credit Card Should You Use?

When it comes to a purchase as large as a vehicle, not all credit cards are created equal.

If you want to put the entire purchase on your card, your best bet is to use an American Express card with the company’s Express Auto Purchasing Program.

This program is made specifically for financing automotive purchases and increases the likelihood that a dealership will let you use your card for the full price of your new car.

Buyers with premium credit cards such as an American Express Platinum are usually also preferred by dealerships.

credit card closeup

Another good option for putting a car on your credit card is to use an automaker-specific card. These cards are offered by large auto manufacturers in conjunction with credit card companies and generally work on a rewards basis.

As users put purchases on the cards by paying for ordinary necessities, they gradually accrue reward points that can be put toward the purchase of a vehicle from a specific brand. This arrangement can be extremely useful for saving money if you already know what your next car purchase will be.

Some of the manufacturers that offer such credit card rewards programs include Nissan, Toyota, Lexus, GM and Chrysler.

If you’re buying a car with a credit card specifically to earn rewards or travel points, you’ll want to use whichever card the dealership will accept that has the most generous reward program.

One card that may be a good option for this purpose is the Chase Sapphire Preferred card, which offers both considerable cash-back and travel point rewards.

Alternatives to Buying a Car With a Credit Card

If you’re not sold on the idea of paying for your next car with a credit card, you may want to explore other alternative financing options that don’t involve taking out an auto loan.

The simplest and likely best of these options is to just pay cash for the car, as this is the only method that absolutely ensures no interest or fees will accumulate.

Alternatively, you may be able to lock in a lower interest rate on borrowed money by taking out a home equity loan or borrowing from the balance in your 401(k) plan.

piles of cash

Be sure to carefully weigh all interest, fees and tax implications of any financing plan you choose, as they will all have an effect on your overall financial well-being.

A final consideration to keep in mind is that taking out an auto loan isn’t necessarily a bad idea in the current low-interest economic climate.

As of July of 2019, interest rates on new car loans averaged around 5 percent, with some variance depending on the term of the loan.

Borrowers with good credit can often access much lower rates, making it quite inexpensive to finance a new car using a traditional auto loan.

LendingClub has a selection of auto loans that offer competitive rates and might well fit your needs much better than a credit card.

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Warning: Pay off Your Balance

Before you even consider paying for a car with your credit card, it’s important to have enough money on hand to pay off your balance in full when your bill comes due.

This is because the high interest rates charged by credit card companies will quickly begin to add up if your balance is carried over.

With APRs averaging just under 18 percent, carrying a balance as large as the price of a car could incur thousands of dollars in additional interest costs.

The Argument Against Using a Credit Card

Beyond the problem of high interest rates, using a credit card to buy a car may also pose a risk to your credit score. This is because high credit utilization is a negative factor in calculating your score.

Utilization is expressed as the ratio of your balance to your credit limit.

If your car purchase runs the utilization rate on your card close to 100 percent, you may find your credit score dropping considerably, as credit utilization accounts for a substantial portion of your overall score.

In turn, a lower score can increase the cost of borrowing money in the future and make it more difficult for you to take out subsequent loans. Generally, it’s a good idea not to drive your utilization rate above 30 percent.

In the end, you have to weigh the benefits and risks of buying a car with a credit card for yourself. If you have enough money to pay off the balance when your bill comes due and a high enough credit limit, using your credit card can be a good way to get a good amount of cash-back or travel points.

If, on the other hand, you’d have to carry the sum on your balance or don’t have a credit limit considerably above the price of the car, there are likely better and less expensive ways to finance your purchase.

After You Buy, Get Insured Cheaply

Regardless of whether you pay for a car with a credit card or using an alternative financing approach, you’ll want to ensure your car is fully insured – and ideally at the lowest cost.

car insurance hands around car

If you don’t rack up tons of miles each year – and most people don’t – Metromile may be your best option. It’s a pay-per-mile insurance option so you only pay for what you use. Instead of a fixed bill coming in the door even if your car is sitting in the garage a lot, Metromile can save you a chunk of change during those times.

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