Some car dealers may let you buy a car with a credit card — but using your card for an auto purchase could be a risky move.
Some might allow you to use a credit card to pay for your entire car purchase. But it’s more common for dealers to let you use a credit card to pay for a portion of it — such as a down payment. And some dealers don’t accept credit cards at all.
If you’re in the market for a new vehicle, here are a few things to know about using a credit card to buy a car. We’ll also detail other ways you can pay if you decide a credit card isn’t your best option.
- Do car dealers accept credit cards?
- Is it a good idea to buy a car with a credit card?
- Alternatives to using a credit card to buy a car
Do car dealers accept credit cards?
It depends. Some car dealerships accept credit cards as payment for the full vehicle amount or just the down payment on the car loan, and some don’t accept them at all. That could be because every time a dealer accepts a credit card payment, it has to pay a credit card processing fee, which typically ranges from about 1% to 3.5% of the transaction amount.
On large purchases, processing fees can add up quickly. For example, if you want to buy a $30,000 car with a credit card, and the dealership must pay a processing fee of 3%, it’d have to pay $900 on that one transaction.
To avoid hefty credit card processing fees, many dealerships accept other forms of payment, including cash, money orders, personal checks, cashier’s checks and ACH transfers.
Is it a good idea to buy a car with a credit card?
If you want to use your credit card to pay for part or all of your car, there are several things to consider.
Your credit limit and credit utilization
Your credit limit is the maximum amount your credit card issuer will allow you to charge on your card. If it’s low, you may not be able to use your card to buy a car without going over the limit.
Even if the credit limit is high enough to pay for the entire purchase price of the car, you may not want to. The closer you get to the card’s limit, the higher your credit utilization ratio will be.
Your credit utilization ratio is the amount of credit you’re using compared to the total amount of credit you have available. It’s one of the main factors used to calculate your credit scores, and a high ratio could negatively affect your scores.
High credit card interest charges
Credit card companies typically charge high interest rates. In November 2020, the average credit card APR, on accounts that were charged interest, was 16.28%, compared to an average rate of 4.95% for a 48-month new-car loan. If you aren’t able to pay off your purchase right away and just make the minimum payments, you could pay more in interest with a credit card than you would if you got an auto loan.
There’s one caveat to this: If you get a new card with a 0% intro APR to make your purchase and you’re able to pay off the balance before the intro period expires, you could avoid interest charges altogether. But if you don’t pay the balance in full before the promotional period ends, you’ll pay the card’s regular rate on the remaining balance.
Using a rewards credit card to make large purchases — such as a car — is a great way to rack up extra rewards points or airline miles and can help you meet spending requirements to earn bonus points. But it only makes sense if you earn enough rewards to offset the card’s annual fee (if it has one) and can pay off the card right away. Otherwise, any rewards you earn will likely be outweighed by fees and interest charges.
Alternatives to using a credit card to buy a car
If you’re strapped for cash, using a credit card to buy a car may seem like a good solution. But if you can’t pay the credit card bill in full as soon as you receive it, it could cost you. Here are a few alternatives to consider.
- Consider car financing. You’ll typically pay a lower interest rate on an auto loan than you will on a credit card. An online auto loan calculator can help you get a sense of how much interest you might pay on a car loan as well as what your monthly payments would be. Even if you have bad credit, there may be lenders who are willing to work with you.
- Find a co-signer. If you’re worried you won’t be able to get an auto loan or that the interest rate will be too high, consider applying with a co-signer. A co-signer who has good credit could help improve your chances of qualifying and getting a lower rate.
- Use cash. You may not be able to buy the car of your dreams if you have to use cash. But saving up and buying a less expensive car you can afford is likely a better option than jeopardizing your financial health by using a credit card to buy a car you can’t afford.
- Do a trade-in. If you already own a car, you might be able to trade it in and use the trade-in value for a down payment on a new car.
It’s important to weigh the pros and cons of each payment option carefully before you buy your next car. If you decide to use a credit card to cover the car’s purchase price — or even just the down payment — make sure you have a plan to pay it off as quickly as possible to minimize interest charges.
If you choose to get an auto loan, shop around and compare offers to ensure you’re getting the best deal possible. Many lenders offer the ability to apply for prequalification, which lets you see the estimated interest rates and loan terms you may qualify for without affecting your credit scores. Just keep in mind that prequalification isn’t a guarantee of terms or loan approval, and your loan rates and terms may change once you submit a complete application.