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When you go shopping these days, chances are you pay for almost everything with debit or credit cards. Plastic is so easy. Who even carries a checkbook anymore?
If you’re shopping for a car, you might wonder if you can pay all or part of the purchase price of the car with a credit card. As strange as it may feel to pull out a credit card to pay for your car, it’s not a far-fetched idea. Car dealers want your business, and many of them now let you put up to a maximum amount on your credit card.
When I bought my car, I had a fairly new rewards card I was excited about. I took a chance and asked if I could pay by card. The sales representative told me I could put up to $8,000 of the purchase price on my credit card. That gave my rewards balance quite a boost. Your dealership may have different limitations, but it doesn’t hurt to ask.
Pros and cons of buying a car with a credit card
Just because pulling out a credit card is easy doesn’t mean it’s the best way for you to pay for your car. Each financial situation is unique, so check out these pros and cons to paying for a car with a credit card before you head to the lot.
Pros of buying a car with a credit card:
- It’s easy to use. It’s so easy to pull out a credit card and use it. You don’t have to apply for a loan, and there’s no credit check to use an existing card.
- You can earn credit card rewards. If you have a rewards card, this is a big motivation. Putting even a portion of your car purchase on a credit card can result in significant rewards. This is especially true if you have a credit card that offers bonus rewards on car purchases such as the CardName. With this card you can earn 7X points per dollar spent on GM purchases. What’s more, you could use rewards earned on the card towards a future car lease or purchase.
- It can help you garner potential credit card welcome bonuses. Some new credit card offers require you to spend a minimum amount within a period of time to earn certain perks. By putting some or all of your car purchase on a new card, you may reach that minimum all at once.
- A 0% APR credit card can save you interest expense. If you qualify for a 0% or low-interest introductory rate credit card, you may qualify for a lower interest rate than you could get by taking out an auto loan. In addition, knowing the rate goes up when the introductory rate ends can be great motivation to pay the balance off quickly.
- You don’t have a lien on your car. With a regular car loan, in the unlikely event you cannot make your payments your car can be repossessed. With a credit card, the credit card company still has recourse if you stop paying, but they do not have a lien on your car.
Cons of buying a car with a credit card:
- Dealers may limit amount you can pay with a credit card. If you’re buying a newer car, the maximum amount your dealer may accept as payment by card may be limited; for example, from $8,000 to $10,000. You’ll need to come up with cash or additional financing for the rest.
- Introductory 0% APR time periods go fast. You may plan to pay off your car purchase before the introductory period ends, but what happens if you don’t? Your interest rate could soar to 18% or higher, which would turn into a very expensive loan.
- Credit card interest rates are typically higher than secured loans. Without an introductory rate, the average credit card interest rate for the third quarter of 2022 is 16.27%. For new credit card offers, the average is 22.40%. By contrast, the average used car loan in November 2022 is 9.56% for borrowers with excellent credit, and you may be able to find deals as low as 2.49%. Some dealerships offer special financing deals as part of their sales programs.
- If you have ballooning credit card debt, adding to it can make it worse. If you have a problem with credit card debt, or you have any doubt about being able to pay your balance off in a reasonable period of time, consider paying for your car some other way.
- Credit card debt doesn’t improve the credit mix for your credit score. Credit scoring models give higher marks for having different types of credit, called a “credit mix.” If your only reported credit usage is for credit cards, it helps to have a car loan or other installment plan in your credit history. By using a credit card to purchase a car, you lose that opportunity to improve your credit mix.
- Credit card accounts have no set payment plan with clear payoff date. When you take out a car loan, you know when the car will be paid off. You can generally pay it down sooner, but it won’t drag out indefinitely. Credit card minimum payments, on the other hand, tend to be low. You could be paying on your car long after its useful life is over. If you continue to use the credit card and add purchases to the balance, it may never be paid off.
- Private parties generally do not accept credit cards. You generally limit your choice of where to buy your car to dealerships if you want to use a credit card.
Bottom line: Can you buy a car with a credit card?
If you’re buying a car from a dealership, there’s a good chance you can pay for some or all of the purchase price of your car with your credit card. It can be a great way to reap more credit card rewards and benefits, and it’s one of the easiest ways to buy a car and be on your way.
Whether you really should use a credit card or not to pay for your car depends on your financial habits and situation. The most important thing to remember is to determine how you will pay for your car before you go on the first test drive. If you need a car loan, shop for the loan before you shop for a car. After you’ve looked at all your options and your budget, you can decide if paying some or all of the purchase price of your car with a credit card fits into your total financial plan.
