A car, truck or SUV may be one of the biggest purchases you ever make, so it pays to think about how you’re going to finance that shiny new set of wheels. One way to pay: Pull out your credit card.
A car, truck or SUV may be one of the biggest purchases you ever make, so it pays to think about how you’re going to finance that shiny new set of wheels. One way to pay: pull out your credit card.
So, can you buy a car with a credit card? Many auto dealers will let you make a down payment on a card, but it’s tougher to find one that will allow you to use a card for the entire purchase.
That was the experience of financial expert and founder of The Income Finder Paul Weaver, who bought a new Ford Explorer in May at a dealer outside Chicago. The dealer allowed him to put $3,000 of the $40,000 purchase price on his Chase Sapphire Preferred® Card.
That earned him 3,000 points, plus he’ll get a 25% boost when redeeming those rewards for travel through the Chase Ultimate Rewards portal on a dream Disney vacation with his wife and three-year-old daughter.
“The decision to use our card was strictly to take advantage of the points we earned,” Weaver says.
When should you buy a car with a credit card?
5 times it’s smart to put a car on a credit cardBuying a car with a credit card can be a smart money move in certain scenarios, depending on factors such as your reason for using a card, the dealer policy, what rewards your card offers and your overall financial situation.
Here are five situations when it may make sense to pull out your card at the car dealership:
1. You have the money to pay your bill in full
Only put a down payment or purchase of a car on a card if you have the cash to cover the cost. Getting hit with interest on a big purchase will instantly wipe out your rewards.
Financing a car on a credit card is almost always a bad move because there are typically better and cheaper options. One exception might be putting a car down payment on a credit card that offers a 0% introductory APR on purchases – if you have a plan to pay off the charge in the allotted time frame.
“This would not have made sense for us if we couldn’t pay the balance off in full right away,” Weaver says.
2. The car dealer takes credit cards
Many car dealerships put a dollar limit on how much you can pay with a card, and some charge a 2% to 3% fee to cover credit card processing costs.
In Weaver’s case, the dealer would have charged a 3% fee for any amount over $3,000 paid with a card. Most dealers cap the amount they’ll take on a credit card at $5,000, or at most $10,000, says Randy Henrick, auto finance consultant and president of Auto Dealer Compliance.
“If it’s the difference between making a sale and not making a sale, the dealer might do it,” he says.
See related: How to buy a used car
3. You want to grab a big sign-up bonus
A vehicle down payment or purchase can allow you to easily hit the minimum spending required for a big welcome bonus. This can be especially helpful with card issuers offering huge sign-up bonuses that require very high minimum spending.
It’s not uncommon to find a welcome bonus worth $500 to $800 or more when you spend $3,000 to $5,000, says Nick Reyes, senior author at Frequent Miler, a points and miles blog.
“Even if you can only put a few thousand dollars on a credit card, it’s a great opportunity to get a significant amount of value back,” he says.
4. You have a high-limit card in your wallet
You’ll need to make sure the card you want to use has a high enough credit limit. If you’re planning to open a new card to use the vehicle purchase to meet your minimum spend for a sign-up bonus, apply early and make sure your new card has a high enough credit limit to charge your desired amount.
The average credit limit for a new card in November 2020 was just under $4,000, according to the Equifax Credit Trends report. Need a higher limit? You may be in luck if you have more than one card with an issuer that allows cardholders to move credit limits.
“I’ve successfully done this via secure message by simply asking to move some of my credit limit from Card A to Card B,” Reyes says.
5. You’ve weighed a card against other options
It’s important to look at the pros and cons of putting all or part of a car purchase on a credit card and also assess your other choices. While there’s a “feel good” aspect to getting a big chunk of rewards and knowing you can cash them in for a dream vacation, it’s important to think through your situation.
For example, if you’d be tapping your emergency fund to pay back the credit card bill for your car purchase, it might make more sense to see if you qualify for a zero- or low-interest auto loan – aka “free money.”
The car site Edmunds.com offers a list of zero-interest car loans available now.
“Interest rates are so low right now, it’s not that big of a deal to offer 0%,” Henrick says.
See related: How to lower your credit card interest rate
Best credit cards for buying a car
Want to plan ahead and get a new card to leverage your car down payment or purchase to earn maximum rewards? Here are our picks for the best credit card for buying a car:
Welcome bonus: 100,000 points when you use your card to make $6,000 in purchases in the first six months, and earn 10 points per $1 on eligible purchases at restaurants worldwide and when you Shop Small in the U.S., on up to $25,000 in combined purchases, in the first six months.
Annual fee: $695
Rewards structure: Earn 5 points per $1 spent on flights booked directly with airlines or American Express Travel (on up to $500,000 on these purchases per calendar year), 5 points per $1 on prepaid hotels booked with American Express Travel, and earn 1 point per dollar on everything else
Why it’s a good credit card for buying a car: The card has a solid welcome bonus and earns Membership Rewards, points that can be transferred to a variety of airline and hotel partners to maximize redemption value.
Welcome bonus: Earn $200 when you spend $500 on purchases in the first three months from account opening.
Annual fee: $0
Rewards structure: Earn 5% cash back on travel purchased from Chase Ultimate Rewards, 3% cash back on dining and drugstore purchases and 1.5% back on other purchases. Plus, earn 5% cash back on grocery store purchases (not including Target® or Walmart® purchases) on up to $12,000 spent in the first year.
Why it’s a good credit card for buying a car: Since car purchases don’t fall into bonus spending categories on most cards, the 1.5% earning rate for the “everything else” category gets you a half-point more than most other cards. You could put $500 of your down payment on this card to earn $200, and put the rest on another card.
Welcome bonus: Earn 60,000 bonus miles if you spend $3,000 on purchases in the first three months from account opening.
Annual fee: $95
Rewards structure: Earn unlimited 2 miles per dollar spent on purchases
Why it’s a good credit card for buying a car: The sign-up bonus for hitting the spending target makes this a great card to use if you’ve convinced a dealer to let you buy a portion of a car on a credit card.
Welcome bonus: Earn 100,000 points when you spend $15,000 in the first three months after opening the account, worth $1,250 in travel when redeemed through the Chase Ultimate Rewards portal
Annual fee: $95
Rewards structure: Earn 3 points per dollar spent on the first $150,000 per year in combined purchases on: advertising with search engines and social sites, cable, internet, phone, shipping and travel and 1 point per dollar other purchases
Why it’s a good credit card for buying a car: If you’re a small-business owner or you have a side hustle, the big sign-up bonus and high spending requirement make this a great card for purchasing a car if the dealer will let you use your card for at least half the purchase.
If you know what kind of car you want to buy, another option is to get a co-branded automaker credit card, such as the BMW Card, BuyPower Card from GM or the Toyota Rewards Visa. These cards may allow you to earn points toward an auto purchase and give extra bonus points for dealership purchases.
What if you can’t pay with your credit card?
If your chosen car dealer balks at allowing you to pay with credit, you can do what Reyes and his wife did: use Plastiq, a service that allows you to pay for almost anything with a card.
“Essentially, you pay Plastiq with a credit card and Plastiq sends a check to your biller,” Reyes says. “They charge a credit card processing fee, but it can be worth paying that fee if you’re earning a new credit card bonus.”