Can You Buy a Car with a Credit Card?

Fran
Lucy Lazarony
December 30, 2020

Yes, it may be possible to buy a car with a credit card. But there are a few hurdles to jump over first. What is the dealer’s policy on paying by credit card? Is there a maximum amount that can be charged? How big is your credit line? Is it empty? For a large charge, such as a purchase of a car, you may need to get permission from your credit card issuer. If you have enough room on your credit line and you have the dealer’s OK and your credit card company’s OK, you can go ahead and charge a car on your credit card. But before you do, weigh the financial costs carefully.

Financial Consequences

What kind of interest rate is on your credit card? Do you have a special offer of zero-percent interest and that is why you wanted to use the card? How long does the offer last? Will you be able to pay off the purchase of the car before the zero percent interest ends? What will the card’s interest rate be after the special promotion ends? Interest can end up being hundreds of extra dollars a year or even each month!

Or maybe your card doesn’t have a special offer at all and you are dealing with your card’s regular interest rate for that big purchase. Either way, once a card’s annual percentage rate gets applied to your purchase of the car, you’ll be paying interest.

Calculator.net has a credit card calculator that helps you estimate how much it will cost to pay off a credit card balance. Use this calculator before you make your car purchase. You want to know just how much you’ll be paying in interest charges. All you need is the credit card balance, interest rate and the minimum payment or fixed payment amount for using the calculator.

Racking Up Rewards

Was your plan in charging a car on a credit card to rack up rewards points or miles? You certainly will earn lots of rewards by charging a car on a credit card. But can you pay off the balance straight away? Otherwise, there will be heavy interest charges to pay. Rewards cards work best when you can pay off the balance in full each and every month. Start carrying a balance and the cost of the card goes up and you wind up paying finance charges. The rewards don’t feel as rewarding when the interest clock is ticking on a leftover balance.

Still intent on earning miles or rewards points on your next trip to the car dealership?

Use your rewards credit card to make a down payment on a car. You’ll put down a couple thousand dollars on your credit card, earn some nifty rewards and still be able to pay it off without interest beginning to accrue. The key is paying off the balance in full so you won’t be hit with interest charges. So pay off that balance as soon as possible and enjoy the rewards that you earned.

Credit Consequences

Charging up a credit line by purchasing a car can hurt your credit if you don’t pay the balance in full, if not right away, as soon as possible. Your wallet takes a hit with the finance charges and your credit takes a hit because you’ve charged up a credit card near to its limit. This affects your credit utilization. Credit utilization looks at how much of a credit line is being used. And by buying a car on a credit card you’ve just utilized a whole bunch of credit. For your credit score to improve you’ll need to pay down that credit card balance as soon as possible.

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Steps to Take

Still gungho on buying a car with a credit card? Follow these steps. Take a look at your finances. How much cash do you have in your savings? Do you have enough to pay for a car? If so, buying a car with a credit card isn’t such a bad idea.

Choose a card with a roomy credit line and if it is a rewards card all the better. Check with the dealer and the credit card company about paying by credit card. Once you’ve got their permission, you can head over to the dealer’s lot and pick out your car and charge it on your credit card.

Make a pay down plan. Unless you’ve got the money to pay off the car purchase in full, you’ll be paying interest charges on your car purchase. And you need a strategy for paying off the debt. Minimum payments might not be so small on such a big purchase but you’ll still want to make double or triple minimum payments if you can. Be steady and consistent with card payments, paying down debt and building a solid payment history. All those things are good for your credit. And you’ll need to rebuild it some after charging such a large balance on your credit card.

Down Payment Option

If buying a car on a credit card is too big for your credit and your wallet, how about using a credit card for a down payment? As mentioned earlier, this can be a nifty way to earn rewards. You have a couple thousand in cash so making the credit card payment in full won’t be a problem. You use your favorite rewards card to make the down payment and earn rewards. And you pay off the credit card before the month is up. And then you are all set, all rewards and no finance charges.

Just be sure to check with the dealer ahead of time. Make sure they allow down payments on credit cards. If the answer is yes, find out how much can be put down. You may want to double-check with your credit card company as well. Give them the heads up that you will be making a down payment at a car dealership and to expect the charge shortly.

Insurance

No matter which way you end up paying for your car, don't forget car insurance payments. If you're buying with a credit card, you won't be obligated to purchase collision and comprehensive coverage, which you'd have to buy if you were to take out a car loan. However, it may not be a bad idea to consider it so you don't have to pay for damages if an accident is your fault. Regardless of what you end up choosing to do, compare rates before you buy. Let SmartFinancial do the comparison shopping with over 200 insurers for you. Just start by entering your zip code below.

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