Can You Buy A Car With A Credit Card?
Hanna Kielar5-minute read
December 23, 2021
You need wheels, and you've got a credit card with an amazing credit limit or a great introductory interest rate. Can you buy a car with a credit card, and if so, do you want to? Keep reading to get the answers to these questions as well as some tips for other financing options for vehicle purchases.
The Short Answer: Yes, You Can Pay For A Car With A Credit Card
If you have a high enough credit limit to cover the cost of the car and the seller is willing to take a credit card as the only form of payment, yes, you can pay for a car with a credit card. But it's not always that easy.
You might be wondering, do car dealerships take credit cards? The answer is yes. Credit cards are accepted all the time for payments on vehicle services, accessory purchases and often down payments. But, if you cover the entire purchase price of a car with a credit card, that leaves the dealership on the hook for potentially thousands of dollars in merchant fees. They may be less likely to negotiate with you on price if they're taking that type of hit.
According to Square, average credit card processing fees range from 1.43% – 3.5%. On a $30,000 car purchase, that's up to $1,050.
Should You Buy A Car With A Credit Card?
Can you pay for a car with a credit card? Yes. But is it a good idea? Weighing the pros and cons is important when you're considering buying a car with a credit card. If someone is thinking about putting $20,000 on their credit card to buy a car, they might consider factors such as rewards, interest rates and surcharge fees.
Buying a car with a credit card does have some benefits. Here's a look at potential perks using our hypothetical $20,000 car purchase.
- Rewards: What if the person gets 2% cash back for every dollar spent? A $20,000 car purchase equates to $400. By using it as a statement credit to offset the balance, the car owner effectively reduces the cost of their car.
- Title-in-hand ownership: While you're buying a car with credit, you're not getting a loan for it. This means there are no liens on your vehicle. You get the title right away, which means you can sell the car anytime you like, and it won't be automatically repossessed if you fall behind on payments.
- Introductory rate: If you have a credit card with an introductory rate offer, you may be able to cut out some interest costs without paying for the car in cash up front. For example, if someone has a card with an introductory APR of 0% for 22 months, they could put the $20,000 car on that card. If they can pay $910 a month on the balance, they won't pay any interest on the purchase. When considering this factor, do the math to figure out if you can pay enough each month to take full advantage of the introductory period.
It's not all rewards points and interest savings when buying a car with a credit card, though. Here are some potential disadvantages.
- Surcharge fees: Dealers in many states can impose a surcharge when someone pays with a credit card. The surcharge can't be more than the dealer pays to accept the credit card, but that could be $700 or more on a $20,000 vehicle purchase.
- High interest rates: The average interest rate for a used car purchase with an auto loan is around 8.66% as of September 2021. The average credit card interest rate is around 15.91%. Someone paying for a $20,000 car and then paying $412 per month for 60 months would pay $4,712 in interest at the auto loan rate. At the credit card rate, paying $400 a month would take more than 30 years to pay off the balance and result in more than $35,000 in interest.
- Credit score drop: One factor in your credit score is credit utilization. This is how much of your revolving credit limits, such as those associated with credit cards, you're currently using. The Consumer Financial Protection Bureau indicates you should strive to keep balances lower than 30% of your credit limit. Putting a whole car purchase on a credit card is likely to drive up your utilization rate, which can drop your credit score. And if you can't pay off the amount quickly, that can remain an issue.
Understanding Your Other Financing Options
Credit cards aren't the only way to pay for a car. If the cons outweigh the pros when it comes to using a credit card to buy a car, consider some of the options below.
Get A Car Loan
Car loans are one of the most common ways to fund the purchase of new or used vehicles. They come with lower interest rates than credit cards in most cases, and they can result in an affordable monthly payment.
Getting a car loan also helps you build your credit.
If you make your payments on time each month and the lender reports to the credit bureaus, that creates a positive payment history – a big deal for your credit score.
Refinance Later On
Speaking of building credit, if you don't already have good credit, getting a car loan with the best terms or interest rate may be difficult. One option is to take the loan you can get, especially if you need the car for work or other purposes.
You can use the loan to build your credit. That only works, however, if you know you can make the monthly payments on time.
If your credit score goes up, you can refinance the car loan to get a better interest rate and save yourself some money.
Find A Co-signer
Borrowers who have a poor credit score may not be approved for a loan – even a high-interest one. The same is true if you have no credit history at all.
If you find yourself in this situation, you might consider asking someone you trust (and who has good credit) to co-sign an auto loan for you. In these cases, the lender bases approval, terms and interest rates mostly on the credit of your co-signer. This can help you get approved for a loan with potentially lower monthly payments and overall cost of ownership than if you tried to get the loan by yourself.
Reduce Your Budget
Reducing how much you plan to spend on a vehicle may help you get financing or buy the car outright without using a credit card. With the right deal, you might be able to buy a car with money in your savings account.
Even if you do have to finance, a lower purchase price could open more funding doors. A less expensive car means reduced monthly payments, and that can make it more likely that lenders will agree your income is enough to cover the obligation.
One way to get the car you want at a reduced price is to buy a used car.
The Bottom Line: Consider Your Options
Buying a car doesn't have to be stressful, and planning ahead for financing helps reduce anxiety when you're ready to make a purchase. If you have a high credit limit, you could pay for a car with your credit card. But, there are other financing options to consider, and car loans are typically the least expensive way to buy a car if you have to put it on credit. Learn more about what credit score is needed to buy a car so you're prepared with the right options when you're ready to buy.
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