You can buy a car with a credit card in certain circumstances. But it may be smart to ask yourself if this is the best way for you to purchase your vehicle. This post will take you through the pros and cons of buying a car with your card, as well as provide information about what you can expect from the process.
Buying a Car with a Credit Card
You’ve decided how much you want to spend on a new car, and you’ve negotiated a fair price with a dealer. But before slapping down your plastic to purchase a new or used car, you’ll first need to check with your car dealership to verify that they accept credit card purchases, which cards they accept, and how much of the total purchase price they will allow you to charge.
If you go to a dealer that won’t accept credit card purchases, or limits the amount, you’ll have to decide whether to pay another way or to go to another place that sells the car you want and allows credit card purchases.
However, if you’ve selected a car at a dealership that takes credit card payments, your next step is to check your credit limit to determine whether it’s high enough to use one card, or whether you’ll need to spread out the purchase over multiple cards.
If your combined limits aren’t enough, you could pay the difference with a cashier’s check and still reap some of the rewards-point benefits available through credit card use. Or you could ask your credit card companies to increase your limits.
It also makes sense to notify your credit card companies that you intend to use your credit cards to make a large purchase. If you don’t regularly make large purchases on your credit cards, the transaction might get flagged as potentially fraudulent and could get declined.
At a car dealership that does let you pay for a car with a credit card—or at least a portion of it—you might consider using a rewards credit card for that portion. If you have cash to pay the charge before it starts accruing interest, you’re basically getting a zero-percent, short-term loan while taking advantage of the credit card perks.
Recommended: What to Know About Managing Credit Card Rewards
Why Some Car Dealers Don’t Accept Credit Cards
On the surface it might seem odd that auto dealers wouldn’t accept credit cards. Afterall, they want to make a sale, right? Of course they do, but they, like other merchants, must pay processing fees for each credit card transaction they make. These fees tend to be around 2%, and they can add up pretty quickly when you consider that cars can cost in the tens of thousands of dollars. By rejecting credit cards, dealers can save themselves the expense and hassle of paying these fees.
If a dealer that normally doesn’t allow credit card purchases makes an exception, expect them to tack on convenience fees of 2% to 4% to help them cover the cost of the transaction. Pay close attention to these fees because they may offset any benefit you might gain from using a rewards card.
Pros of Car Buying With a Credit Card
Under certain circumstances, using a credit card to buy a vehicle can be an excellent strategy to consider, especially if you have money in the bank to pay off the balance in full when your statement comes.
In this scenario, you’ll have a fast and easy way to purchase your car of choice and, depending upon the credit card, you may earn rewards points, something you wouldn’t get if you simply used a cashier’s check to buy the car.
You may have slightly longer to pay off your purchase if you use a credit card that has a zero percent interest rate over a certain period of time, such as six months. In order to avoid interest payments, you must finish paying off your vehicle in that time period. This strategy may be riskier than paying off your full balance immediately. If, for some reason, you can’t pay the balance off within the introductory no-interest period due to unforeseen circumstances, then the card will revert to its regular rate, which may be quite high.
If that happens, the situation can go downhill from there, because some credit card companies will then charge the full interest rate on the entire purchase, not just on the remaining balance. So, in that case, nothing was free and you’ll end up paying a high interest rate on the total balance.
Cons of Car Buying With a Credit Card
The biggest reason not to buy a car with your credit card is that credit card interest rates are typically much higher than other available options. And in some situations you might get stuck with some costly fees.
For example, let’s say that your strategy is to purchase a car on your current credit cards, then transfer the balance to a zero-interest credit card. Besides the challenges listed above, you may add transfer balance fees to the mix. These fees can be as high as 5%, which, on a $20,000 car, is $1,000.
Here’s something else to consider. Having different kinds of debt can actually help with your credit score, so using an installment loan, such as a traditional auto loan, to buy your car instead of a credit card may be helpful to your overall long-term financial situation. And if your credit score is good enough to gain approval for an auto loan with lower interest rates than the average credit card’s rates, you’ll be coming out ahead.
Other Options for Buying a Car
If you decide to finance some or all or all of your auto purchase, you can apply for a car loan through the dealership or other lenders. Auto loans are typically secured loans that use the vehicle as collateral. So, if you fail to make payments, your lender has the option to repossess the vehicle to cover some of your debt.
Dealers are often able to get same-day financing approved, but there may be some pressure to buy while the salesperson takes advantage of your excitement. Banks and private lenders may take longer to approve an application, but sometimes offer better deals on terms or interest rates. Taking emotion out of the equation when buying a car will allow you to compare rates and terms to get the best deal for your financial situation.
You may also want to consider buying a car with a personal loan, which is an unsecured loan that’s not backed by collateral. Personal loans can be used to cover many expenses, including the cost of buying a car. Because they are unsecured, interest rates on personal loans may be higher than other auto financing options, depending on the applicant’s creditworthiness.
If buying a car is in your future, and you’re ready to start saving, a good move may be to start saving in an account like SoFi Money®, a cash management account where you can save, spend, and earn all in one place.
You can easily create vaults within your SoFi Money account, each for its own purpose (like one for a car fund).
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