When it comes to financing a car, using a credit card could be an option. However, even if they allow credit card payments, many dealers won’t allow you to charge the whole amount.
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A car, truck or SUV may be one of the biggest purchases you ever make, so it pays to think ahead about how you’re going to finance that shiny new set of wheels.
So, can you buy a car with a credit card? It depends on the auto dealer. Many 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. Along with this, some dealers charge credit card processing fees.
When does it make sense to buy a car with a credit card?
Buying a car with a credit card can be a smart money move in certain scenarios. It depends on your reason for using a card, the dealer policy, what rewards your card offers and your overall financial situation.
Here are four situations in which it may make sense to pull out your card at the car dealership:
The car dealer accepts credit cards
Many car dealerships put a dollar limit on how much you can pay with a card. Some also charge a 2% to 3% fee to cover credit card processing costs.
That was the experience of Paul Weaver, financial expert and founder of The Income Finder. His car dealer allowed him to put $3,000 of the $40,000 purchase price on his Chase Sapphire Preferred Card. Weaver would’ve been charged a 3% fee for any amount over $3,000 that he paid with a card.
Most dealers limit 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. A luxury vehicle dealer – think Acura, Lexus or Maserati – might be more likely to let you buy an entire car on a card than a mainstream one, Henrick says.
“If it’s the difference between making a sale and not making a sale, the dealer might do it,” he says.
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 the rewards you’ve earned.
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 with a 0% introductory APR offer on purchases – but only 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.
You want to earn a big sign-up bonus
A vehicle down payment or purchase can allow you to easily hit the minimum spend required for a big welcome bonus. The most lucrative bonuses tend to have higher spending requirements, so if you’re eyeing a premium card, this might be the big purchase to earn you that big bonus.
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.
“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.
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. Use your card as long as you know that you can pay it off quickly or before the introductory period ends to avoid accruing interest.
What to consider before buying a car with a credit card
There are several things to think of to ensure the health of your finances before swiping your credit card:
Your credit limit
You’ll need to make sure the card you want to use has a high credit limit. A credit limit is the maximum amount of credit you have available to borrow from your credit card issuer and you’ll likely be hit with a penalty for exceeding it. To avoid going over your credit limit, you can request a credit limit increase. If you have more than one card with an issuer, you can also find out if the issuer allows cardholders to move credit limits from one card to another.
Keep in mind, even if you do have a high enough limit, you’ll hurt your credit score by maxing out your credit card. Experts generally recommend keeping your credit utilization below 30%.
An extended term for a 0% intro APR
You should consider taking advantage of a 0% intro APR period. Be aware that not all offers are equal, and cards come with varying intro APR offer periods and various additional perks that may benefit you beyond the intro APR.
Establish a plan so you know how you can pay off your card during the introductory period. As the intro APR period ends, you’ll have to continue your payments with the card’s regular APR.
Paying with a credit card can help you maximize your rewards. “The decision to use our card was strictly to take advantage of the points we earned,” Weaver says.
Whether you’re pursuing a lucrative sign-up bonus or using a credit card with great cash back rewards, there are many ways to cash in on rewards with a big credit card purchase. However, it makes sense only if you’re earning rewards and not paying interest – the latter will easily cancel out your rewards if you don’t pay off the balance quickly.
What is the best credit card for buying a car?
If you’re looking to buy a car from the General Motors portfolio of brands, the My GM Rewards Card™ could be your best option for using a credit card to purchase a car. New or pre-owned car purchases from Chevrolet, Buick, GMC and Cadillac (all are GM brands) made with your My GM Rewards card could earn the highest amount of rewards. Plus, the card will give you the best rewards value with redemptions for routine service, parts and accessories and service plans.
Alternatives to using a credit card to buy a car
If you can’t pay your credit card in full quickly, you might be stuck paying a high interest rate on a significant balance. For that reason, some buyers may want to explore other options for purchasing a car.
- Pay with cash: Working on a budget can help you save enough cash to buy a car, although it may take some time. Using cash won’t hurt your credit score unlike the risks you could run into when using a credit card.
- Car financing: You can get an auto loan to buy a car through a financial institution. In most cases, the interest rates are lower than those of a credit card. Plus, you can find lenders who want to work with bad credit scores.
- Get a co-signer: If you’re struggling to get a good loan on your own, try to get a family member with good or excellent credit to co-sign. With a co-signer, you can improve your chances of qualifying for an auto loan.
- Trade in your old car: If you are a car owner, your car might qualify for a trade-in and you can use the trade-in value as a down payment.
- Use Plastiq: If your chosen car dealer balks at allowing you to pay with credit, you can 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.”
Making a large purchase like buying a car with your credit card should be done when you are fully informed and financially secure. Rewards, perks and sign-up bonuses are tempting, but weigh the benefits and drawbacks before making your final decision.
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