Buying a car is one of your most expensive purchases, so if you can put that price on your credit card you can score a heap of points.
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This guide will show you how to use your credit cards wisely when purchasing your next vehicle.
Only charge what you can pay off immediately
Texas attorney Paul Cannon has bought several vehicles using a credit card, both for the down payment and once for the full balance of the car to ramp up his rewards cache.
His rule: He only uses credit when he has the money saved up to pay off the balance immediately.
His advice: Check your credit card’s limit and terms. With his first experience, he didn’t realize the card gave him cash back only for the first $3,000 of his purchase. Now he’s more conscientious about looking at the terms.
Why you likely can charge only some of your car costs
Using a credit card for a vehicle down payment or a portion of the sale is much more common than paying for the entire car on credit.
Most auto dealers have limits on what a buyer can put on a credit card. Matt Jones, a senior editor at Edmunds.com, says in the Southern California market that’s between $3,000-$5,000 (if you ask nicely). An informal poll found those same figures hold true in other states.
Auto dealers must pay a transaction fee to the credit card company when you swipe your card for the purchase. Some car sellers may even pass that transaction fee along to you, so ask about it.
“Different state laws regulate whether that can be done or not,” says Justin Osburn, auto dealer consultant with the National Independent Auto Dealers Association.
Dealers try to find the best financing option for their customer, Osburn says. Or you can find your own financing, which might beat what the dealer is offering.
“Dealer financing can be as low as six months at 0.9 percent interest,” says Jones. “Even with credit card perks, that’s hard to beat.” But if you have the cash to pay off the balance, know that you’ll be paying zero interest, which is best of all.
Jones, who also worked as a car salesperson, offers some insight on other reasons dealers shy away from credit card purchases.
With a credit card transaction, the buyer can contest the charge if the vehicle doesn’t live up to his or her expectations.
Tip: Some dealers will take plastic to close a sale
Jones says not selling a vehicle for an entire day ranks as a cardinal sin in the auto business, so if it’s late on a weekday with no sales pending, the dealer might bend his own rules and put a portion of the sale on the customer’s credit card. You never know what the dealer is facing internally, he says, so you might get lucky.
High-dollar cars and fame? Charge it all
Comedian Dan Nainan wanted to be the first person in New York to get a 2018 Model 3 Tesla \u2026 for $51,000.
I just picked up my brand new Tesla Model 3, the very first one to be delivered in New York City! pic.twitter.com/FdpXh61pGF
\u2014 Dan Nainan (@comediandan) January 22, 2018
“I wanted to use my Platinum Delta SkyMiles® Credit Card from American Express to get rewards based on the cost of the car and credit toward elite status,” says Nainan. “But my limit wasn’t high enough, so instead I handed over The Platinum® Card from American Express.”
Nainan was the first person in New York to get the Tesla, though, and he has drone footage of him driving his new red ride. After cashing in some stocks, he paid off his American Express the next month.
Tip: The truth about AmEx cards and credit limits
Although many American Express cardholders believe they don’t have a credit limit, that’s not quite true. For example, a Platinum Card from American Express has no preset spending limits, but that doesn’t mean unlimited purchasing power. Instead, how much you can put on the card adjusts according to what you buy, your payment history, your credit record and your financial situation that is known by American Express.
Buying a car with a credit card: 5 tips
1. Make sure you’re getting a good deal
Start by negotiating a good price for the car.
Do your research ahead of time by using car pricing guides such as those offered by Edmunds.com or KellyBlueBook.com to find out what the car is worth.
If the dealer is too willing to let you use a credit card, it might mean the price you’re paying for the car may be too high.
2. Run the numbers
Tally up exactly how much charging part or all of the price will benefit (or cost) you.
For example, if you’re using a 2 percent cash back card and you can charge $5,000, you’ll get $100 back.
If you’re using a card because you lack the cash for a down payment, calculate how much interest you’ll pay and add that to the total price of the car.
If a high-interest card is your only option, and you can’t pay the balance in full right away, you might want to reconsider plastic.
3. Don’t get tunnel vision
Avoid getting so focused on using plastic to get a few hundred dollars in rewards that you ignore the savings you could get with good financing.
Zero-percent dealership financing offers are sometimes available on new models or cars that aren’t selling well. Consumers with credit scores of 700 and up should have no problem getting approved.
Putting the down payment on a rewards card – if you pay it off right away – and getting a 0-percent financing deal could get you substantial savings.
4. Consider your credit score
You don’t want to damage your credit score just to get credit card rewards.
Credit utilization makes up 30 percent of your total credit score. That’s the percentage of available credit you’ve borrowed, so carrying a big balance (like the cost of a vehicle) doesn’t work in your favor and can significantly impact your credit score. So, again, it’s best to have the cash on hand to reimburse your card immediately after you make the charge.
5. Reflect on your financial future
Augustin Kennady, a media relations director in Portland, Oregon, wanted to use his Discover it® Cash Back card to put 20 percent down on a certified pre-owned Lexus.
Since Kennady had just received his card, the car purchase was within the card’s promotional 0 percent APR period. This meant he could borrow the down payment for free, “as long as I paid it back in full by the end of the promotional period, which wasn’t a problem.”
A bonus: “The Discover it Cash Back card has a cash back bonus of 1 percent, giving me free money for using my credit card,” he says.
– Allie Johnson
See related: Using rewards to buy a new car
Automaker credit cards are another option
With automaker credit cards, you earn rewards on most purchases, often banking cash for a future vehicle purchase or car accessories.
For example, the GM BuyPower Card from Capital One lets you save toward a new Chevrolet, Buick, GMC or Cadillac. Cardmembers earn 5 percent back on the first $5,000 of their purchases each year and 2 percent unlimited earnings after that.
Other vehicle manufacturers, including Chrysler, Nissan, Lexus and Toyota, also offer reward cards. Each has different terms and requirements.
The Toyota Rewards Visa, for instance, gives 5,000 points for spending $500 outside Toyota dealerships in the first 90 days you have the card. Additional reward points vary depending on what you buy and they all can be redeemed for service, parts, accessories and eligible Toyota purchases.
These cards are designed for consumers who know what their next car will be.
Auto expert Chris Duke of San Diego has his eye on a GM truck, so he started racking up points with his GM BuyPower Card at the end of last year.
“I’m accruing earnings toward a truck now and that’ll help expedite things,” says Duke.
Balance transfer cards add time to pay car bill
Jones suggests charging the dealer’s limit and putting the remainder of the purchase on a zero-percent balance transfer credit card or balance transfer check.
Seattle mom Jodi Allard did that when she needed to buy her son his first car.
“We couldn’t get what he needed with the amount I’d set aside, so I used a check that the First National Bank of Omaha Visa sent me,” says Allard. “That check fixed the life of the purchase at 6 percent, which beats regular credit card interest.”
Since Allard bought a 2008 Toyota Yaris S for $7,148, financing the $2,000 she didn’t have would have likely been at a higher interest rate. She also avoided any inquiries into her credit by using the balance transfer check.
Before you swipe – or dip – your card to buy a car…
Take a second look at the possibilities – dealer financing, the rewards you’ll earn, low or zero interest on the credit card you plan to use and balance transfer deals – then make your final decision.
If everything adds up and you’re going to use a credit card, make sure your credit limit is high enough. If not, call the lender to see if you qualify for a credit limit increase.
Also, let your card issuer know you plan to charge all or part of your new vehicle’s price so it won’t trigger a fraud alert. Why? A big expense like the purchase of a car is out of your ordinary spending patterns and often will trigger a text alert to the cardholder about possible card fraud.