Credit cards have higher interest rates than loans. In recent Federal Reserve data, the average APR for credit card accounts that charged interest was 16.65%. The average interest rate from banks for 60-month auto loans was 4.85%.
Of course, each bank uses different rates for consumers. Still, the wide difference in interest rates illustrates that having a car loan will be cheaper than using a credit card and spreading out monthly payments.
True, these loyalty programs tied to credit cards can help reduce the cost of vehicle ownership by using points for discounts at dealerships. However, even the biggest spenders must make a considerable amount of eligible purchases just to make a dent in the cost of a new car.
While it may be unconventional to the average consumer, there is nothing that legally prevents you from buying a car with a credit card. As long as your credit limit is high enough, you can put down a down payment or even a complete purchase with enough available credit.
With that said, many dealerships have a dollar limit on credit card payments. Merchants are charged a fee for credit sales, and those fees are a small percentage of the total sale. So on a large purchase, like a brand new car, the dealer could be spending hundreds or even thousands of dollars just on card fees alone. For this same reason, some dealers will place a 2-3% surcharge on credit card purchases to help offset the incurred costs. Exactly how much you can put on your card will be up to your dealer, but most will limit credit card charges to between $5,000 and $10,000.
Another potential option that is worth mentioning is getting an automakers' branded credit card. Much like a regular credit card, you earn rewards with every purchase, and you can redeem these rewards toward the purchase of a car. In theory, this is a viable option for those with good credit. However, you would need to spend a lot of money to earn enough rewards to buy a new car or even to make a significant down payment.
For many people, it might make sense just to try and look for a low-interest auto loan instead of charging a huge sum of money on their credit card. For drivers with good credit, some dealers may even offer 0% financing to well-qualified buyers. While it may not present the instant gratification that credit card reward does, it may end up being more financially beneficial in the long run.
Purchasing a vehicle is a significant undertaking that comes with a lot of moving parts. While searching for the best deal on your desired car, your down payment, monthly payments, and other associated fees are likely top of mind. A question that may naturally arise is \"Can I buy a car with a credit card\"
While the quick and general answer to this is yes, there are many outside factors that may influence or negate this possibility and are worth further consideration. These factors include things like your dealer's credit card policies, your auto lender's credit card policies, and your credit limit and financial standing.
At the same time, you should also consider whether putting your car down payment on your credit card or purchasing a vehicle outright on a credit card is a sensible move for you financially. For most people, it is not an option.
Whether or not you can purchase a vehicle with a credit card will depend on the dealer and the policies they have in place for certain transactions. Many dealers refuse credit card transactions or limit the dollar amount of such transactions due to the hefty transaction fees that often accompany them. Transaction fees are costs that merchants incur when they offer credit card payment options and typically cost the merchant somewhere between 1% and 3% of the purchase total. With car dealerships, a 1% to 3% charge on the price of a vehicle equates to a very large fee.
Car dealers and auto lenders that do accept credit cards as a form of payment may also charge a convenience fee. This fee is often designed to cover the transaction fee mentioned above and can range from 2% to 4%. You should take this into consideration if you decide to purchase a car with your credit card.
If the dealer's or lender's policy allows, you may still encounter some external obstacles that you want to be prepared for. For starters, it is a good idea to double-check your available credit limit to make sure you can cover the entire cost at the time of purchase. Additionally, your credit card issuer may block the transaction as a protective measure unless you first consult with them about your plans for making such a large purchase.
Putting a car down payment on a credit card is an option that many dealers are open to. Dealers may be more willing to allow this type of payment for the total amount, or a partial amount, of your car's down payment.
Similarly, you may be wondering whether you can pay your monthly car payments on your credit card. Most lenders will not accept this form of payment, since a transaction fee may get tacked on to each month's payment, costing the lender money each month. If a lender does provide this option, you may face a further convenience fee imposed by the lender in order to cover their additional costs.
If you are being charged a convenience fee to offset the merchant's transaction costs, this additional cost may negate the benefits of using your credit card. Additionally, if you are not financially able to pay off the charges on your credit card each month, you might also end up spending more money overall, as interest accrues over time.
Further, your credit may take a hit; large purchases made on your credit card may impact your credit utilization ratio, which is the percentage of your credit limit that is currently in use. Since this credit utilization ratio accounts for a portion of your credit score, a large purchase may create a temporary dip in your credit report.
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But depending on your circumstances, you could also opt to pay for a car with a rewards credit card or card with a 0 percent introductory APR offer. If you have a credit limit of around or over $20,000, for example, you could potentially cover the cost of a car and earn rewards points at the same time.
You may also benefit from discussing all the options with your salesperson. Some dealerships may let you pay for part of your car purchase with credit if you finance or pay cash for the rest. The only way to find out your options is by asking.
If you run the numbers and find you cannot afford the monthly payment required to pay your car off before your intro APR period ends, then you may want to switch from plastic to an auto loan with a lower interest rate and better terms.
If you find yourself in a financial situation where using a credit card to buy a car is beneficial for you because of a tempting sign-up bonus or 0 percent APR period, it may be easier to justify using a credit card to buy a new car.
Buying a car with a credit card can make sense if you can earn some rewards, save money on interest for a limited time or anticipate using that card for maintenance appointments or parts and accessory purchases.
Just remember to do the math and consider all the advantages and disadvantages before you take the leap. Using a credit card does let you access some perks, but you will only wind up ahead if you use credit responsibly and you have a solid plan in place to climb out of any debt you take on.
There are benefits to using a credit card if your goal is to earn rewards. But there are also additional costs you might have to bear if you pay with a credit card. So, let's dive into the details so you can decide if buying a car with a credit card is the right financial move for you.
But among dealerships that do accept credit cards for payment, the rules differ. Some dealerships might accept a credit card for the entire purchase, while others only allow you to use a credit card for some (or all) of the down payment.
One of the biggest reasons car dealers don't encourage using a credit card is that it costs them money. The dealership has to pay a transaction fee of around 3% when the customer uses a credit card. When you consider the cost of an average car, that fee can be an expensive way for them to make a sale.
Before you buy a car with a credit card, you need to know how it impacts your credit utilization ratio. This ratio is the amount of credit you've used compared with the total amount of credit you have available.
See the problem A 50% utilization ratio can lower your score. It's fine to go ahead if your circumstances can handle a few months with a lower score. But if you plan to apply for other credit, such as a mortgage, within the next six months, you shouldn't take a risk with your credit score. 59ce067264