Can I make a car down payment with a credit card?

Young Millennial Asian woman shopping online with a laptop and a credit cardImage: Young Millennial Asian woman shopping online with a laptop and a credit card

In a Nutshell

Some car dealerships will let you make a down payment with a credit card, while others only accept traditional forms of payment. If your auto dealership or seller accepts credit cards, consider the pros and cons before handing over your plastic. But depending on the type of credit card you have, there could be some benefits, like earning rewards or using an intro APR offer. Still, financing part of your purchase with a credit card could be a costly move.
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A car dealership might let you use a credit card for your down payment. But it’s not always a great idea. 

When you take out a loan to buy a car, your lender or the dealership might require you to pay for part of the car purchase upfront. This initial payment is called a down payment.

Some dealerships require cash (or an equivalent form of payment, like a debit card, money order, check or electronic transfer) for the down payment. But some may allow you to use a credit card. It can be a good idea in a few cases, and a terrible idea in others. Let’s take a look at potential pros and cons to help you decide.

What’s a typical down payment amount?

Your down payment is generally a percentage of the car’s purchase price, and can be accepted all or in part as cash, a vehicle trade-in or an automaker rebate.

Depending on the lender, your credit health and the vehicle, you might be able to get approved for an auto loan with a low down payment — or no down payment at all. But as a general rule of thumb, a 20% down payment is a good target if you’re buying a new car.

A new vehicle typically depreciates quickly, and can lose around 20% of its value within the first year. A large down payment can help you avoid becoming upside down on your loan, meaning you owe the lender more money than the car is currently worth. Used cars depreciate more slowly, so a smaller down payment of 10% or more might make more sense.

Depreciation aside, there are a few other benefits to making a larger down payment.

  • Taking out a smaller loan amount could make getting approved for a loan easier, especially if you have bad credit.
  • Your monthly payments will be lower.
  • You might get approved for a loan with a lower interest rate.
  • You could wind up paying less interest overall because you’re borrowing less money.

Should I make a car down payment with a credit card?

You’ll first need to figure out if using a credit card to make a car down payment is even an option. Some dealerships and auto lenders don’t accept down payments with a credit card.

If your lender or the car dealership does allow it though, consider these potential pros and cons first.

Pro: You might earn credit card rewards

One of the biggest potential benefits of using a credit card for a car down payment is that you may be able to earn rewards like cash back or airline miles if you’re using a rewards card. If you have a new credit card with a large sign-up bonus, you might be able to use the down payment to meet the initial spending requirement to get those bonus rewards points.

But this can only work in your favor if you have the cash for a down payment on hand and can pay your credit card balance on time and in full. Otherwise, you could rack up interest charges on your credit card balance. An intro APR offer could help offset this downside, but we’ll go into that a little later.

You also need to check your credit limit to determine how much you can afford to put on your card. Be careful that you don’t use up too much of your credit limit. This could increase your credit utilization, which can hurt your credit.

Con: You’ll have to juggle multiple payments

If you use a credit card to make a down payment and aren’t able to pay off your entire credit card balance on time, you’ll essentially be making two finance payments for your car each month: one on your credit card and one on your auto loan. Consider whether your budget can support these two additional payments.

There’s also more to keep track of. You may be able to set up automatic payments for your bills, but it’s still an extra account to manage.

Con: Credit cards often have higher rates than auto loans

If you use a credit card to make a car down payment, you could potentially pay more in interest than if you financed your down payment differently.

In the second quarter of 2020, the average auto loan interest rate was 5.15% for a new-car loan and 9.69% for a used-car loan, according to Experian’s State of the Automotive Finance Market report. In comparison, the average interest rate on a credit card in the second quarter of 2020 was 14.52%, according to Federal Reserve data.

A credit card with an introductory 0% APR offer for purchases could allow you to put your down payment on a credit card and then pay off the bill over a certain period of time without paying interest. But remember that you’ll still need to make minimum payments on the card, in addition to your car loan payments. And if you’re still paying down the balance when the promotional period ends, you’ll wind up paying interest on the remaining balance. This could be a hefty amount of interest, depending on your credit card APR. 

Alternatives to making a car down payment with a credit card

If using a credit card isn’t an option for you, and you can’t afford a down payment with cash, consider these alternatives.

  • Look for a less expensive car that doesn’t require as large of an auto loan and down payment.
  • If you currently own a car, trade it in and use its trade-in value for the down payment.
  • Ask a friend or relative with good credit to co-sign the auto loan to see if you can qualify for a loan without a down payment — and possibly a lower interest rate, too.

Bottom line

Using a credit card to make a down payment on a car come with risks and — depending on the type of credit card you have — rewards. Consider whether your finances would take a hit with a credit card and auto loan payment each month, especially if you’re being charged interest on your credit card balance.

And remember that the down payment is just one factor to pay attention to when considering an auto loan. Shop around and compare loan amounts, interest rates and terms to find the financing that best meets your needs.

About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his work on Business Insider, Cheapi… Read more.