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For many loans, including mortgages and credit cards, you at least need a credit history to prove to the lender that you are a reliable borrower. So, if you just graduated high school and are looking into borrowing student loans, you may be wondering if it’s possible to borrow one without credit history.

It is possible to borrow a student loan with no credit history. Federal student loans (outside of PLUS Loans) do not require a credit check. Private lenders do review an applicant’s credit history during the application process, among other personal financial factors. Potential borrowers who do not have a strong credit history may be able to add a cosigner to strengthen their application, but there are no guarantees.

Federal vs. Private Student Loans

First things first: there are various types of student loans available to student borrowers. They fall into two general categories, federal (offered by the government) and private (offered by banks and other lenders), but there are more options under each umbrella that range from differing eligibility requirements to fixed vs. variable interest rates.

Types of Federal Student Loans

Federal student loans are funded by the U.S. Department of Education and are based on education costs and your current financial situation, not your credit history.

The most desirable type of federal loan (because interest doesn’t accrue while you’re in school, like some federal student loans), the Direct Subsidized Loan, has relatively low fixed interest rates that are set each year by the government.

Subsidization means that the government will pay for any interest that accrues while you’re in school at least half-time as well as during your grace period and some deferral periods. Direct Subsidized Loans are awarded based on financial need and are only available to undergraduate students, but for those that qualify, they are a solid loan option.

The other type of no-credit-required federal loan is the Direct Unsubsidized Loan. It also typically has low interest rates, but no subsidy means the interest starts to accrue as soon as the money is loaned and borrowers are required to pay all the interest that accrues at all times. Unsubsidized loans are available to students at all levels of higher education and are therefore one of the most accessible types of student loans.

Recommended: Comparing Subsidized vs. Unsubsidized Student Loans

One advantage with both types of federal student loan is repayment flexibility, including deferment, income-driven repayment plans, or even forgiveness programs like Public Service Loan Forgiveness. If you’re trying to build or improve your credit score—more on that later—repayment options that can help keep you out of default are key.

Private Student Loans

Students also have the option of applying for private student loans, which are available through some banks, credit unions,or private lenders. The terms can be vastly different depending on the type of loan, whether you choose a fixed or variable interest rate, and for better or worse, your financial history—which includes things like your credit score.

If you’re facing less-than-stellar credit, or not much of a credit history and income, you’ll likely need to apply with a cosigner, typically a family member or a close, trusted friend who guarantees to repay the loan in the event that you can’t. It should be someone not just with a solid financial history, but also someone with whom you have mutual trust. (Here are our tips for choosing a co-signer wisely.)

Applying for Student Loans With FAFSA®

The federal student loan application process starts by filling out the FAFSA® (Free Application for Federal Student Aid). Filling out the FAFSA is completely free, and doesn’t commit you to accepting any type of loan. The FAFSA is also the tool used by many schools to determine a student’s full financial aid award, including scholarships, grants, work-study, and federal student loans.

Applying for Private Student Loans

To get a private student loan, potential borrowers will apply directly with the private lender of their choosing. Each loan application may vary slightly by lender as will the terms and interest rates. Private student loans do not have the same borrower protections that federal student loans offer, such as income-driven repayment plans or deferment or forbearance options. Therefore, they are generally considered as a last resort, after all other sources of aid have been exhausted.

Parent PLUS Loans

Students aren’t the only ones who can apply for federal financial aid. Parents of undergrad students that are enrolled at least half-time, can apply to receive aid on their behalf via the Parent PLUS Loan.

It’s another type of unsubsidized federal loan, but more restrictive in that both parents and children need to meet the minimum eligibility requirements . This type of federal student loan requires a credit check.

Like private loans, parents who don’t have optimal credit history may apply with a cosigner to guarantee the loan. And students are still able to seek additional unsubsidized loans for themselves to cover any gaps.

Tips for Building Credit

Entering college can be a smart time to start establishing credit. A borrower’s credit score can mean the difference between getting a good deal on a loan, or not getting a loan at all. Even a few points higher or lower can impact the interest rates a borrower may qualify for.

Thankfully, there are a number of sites that let you see your score for free and offer notifications if there are changes, so it’s easy to keep track of where you are.

Recommended: How to Build Credit Over Time

The number that signifies “good” credit is between between 670-739 , for FICO Scores®. These scores are determined by factors such as the number of credit accounts a person has and how they are managed. One way to start building credit is to open some kind of credit account, and then make regular payments.

Paying bills on time, credit mix, and credit utilization ratio may all play a role in determining a credit score. While everyone’s circumstances are unique, generally try to make payments on time and a rule of thumb to aim for is to keep the credit utilization ratio under 30%.

The Takeaway

Most federal student loans do not require a credit check and are available to borrowers with no credit history. Parent PLUS loans are one exception as they are federal student loans that do require a credit check. Private student loans do require a credit check. Students with a limited credit history may have the option to apply with a cosigner if they are interested in borrowing a private student loan, though as noted earlier, adding a cosigner does not necessarily guarantee approval for a loan.

As mentioned, private student loans do not have the same borrower protections as federal student loans. For this reason, they are generally considered after all other financing options have been reviewed. SoFi offers no-fee private student loans for undergraduate and graduate students, and their parents.

Learn more about private student loan options available at SoFi.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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If you own a home, you may be interested in tapping into your available home equity. A home equity line of credit, different from a home equity loan, can help you finance a major renovation or anything else.

Homeowners sitting on at least 20% equity—the home’s market value minus what is owed—may be able to secure a HELOC.

Like all financing options, a HELOC has advantages and some less attractive features as well.

Home Equity Line vs. Home Equity Loan

A HELOC is a revolving line of credit that lets you borrow money as needed, up to your approved credit limit, pay back all or part of the balance, and then borrow up to the limit again through your draw period, typically 10 years.

The interest rate is usually variable. You pay interest only the amount of credit you actually use.

A home equity loan is a lump sum with a fixed rate on the loan.

Borrowing limits and repayment terms may also differ, but both use your home as collateral.

Hybrid fixed-rate HELOCs are not the norm but have gained attention. They allow a borrower to withdraw money from the credit line and convert it to a fixed rate.

Recommended: What are the Different Types of Home Equity Loans?

How Does a Home Equity Line of Credit Work?

Once you secure a HELOC with a lender, you can draw against your credit line as needed until your draw period ends. You then repay the balance, typically over 20 years, or refinance to a new loan.

The variable rate is frequently tied to the prime rate, a benchmark index that closely follows the economy. Even if your rate starts out low, it could go up. A margin is added to the index to determine the interest you are charged.

HELOCs can be used for anything but are commonly used to cover big home expenses, like a major renovation or addition.

Home equity rose to a new high in 2020. Remodeling expenditures increased in tandem, to $339 billion in late 2020, and were expected to continue to increase in 2021, CoreLogic found.

A HELOC can also be used to consolidate high-interest debt. Whatever homeowners use a home equity line or loan for—investing in a new business, taking a dream vacation, funding a college education—they need to remember that if they can’t keep up with payments, the lender may force the sale of the home to satisfy the debt.

How Much Can You Borrow With a HELOC?

Depending on your creditworthiness and debt-to-income ratio, you may be able to borrow up to 85% of the value of your home, less the amount owed on your first mortgage.

Thought of another way, most lenders require your combined loan-to-value ratio (CLTV) to be 85% or less for a home equity line of credit.

Here’s an example. Say your home is worth $500,000, you owe $300,000 on your mortgage, and you hope to tap $120,000 of home equity.

combined loan balance (420,000) ÷ current appraised value (500,000) = CLTV (0.84)

Convert to a percentage, and you arrive at 84%, just under many lenders’ CLTV threshold for approval.

You’d receive the ability to access the funds in the form of a credit card or a checkbook. In this example, the liens on your home would be a first mortgage with its existing terms at $300,000 and a second mortgage (the HELOC) with its own terms at $120,000.

Qualifying for a HELOC

The main factors a lender will consider include:

•  Your home’s market value

•  How much you still owe on the home

•  Credit score

•  Employment history

•  Income

•  Debt-to-income ratio

Shopping around with different lenders can reveal minimum credit score ranges required for HELOC approval. You can also use that as an opportunity to take a cue from the Federal Trade Commission, which advises shoppers to:

•  Check and compare terms

•  Check the periodic and lifetime rate caps

•  Ask which index is used and how much and how often it can change

•  Check the margin

•  Ask whether you can convert your variable-rate loan to a fixed rate later

•  Ask if the rate you’re offered is “discounted.” If it is, find out how the rate will be determined after the discount period and how much your payments could rise.

If you’re comparing advertised annual percentage rates (APRs) for HELOCs, know that unlike a home equity loan, the APR for a home equity line of credit does not take points and financing charges into consideration. The APR is based on interest alone.

Pros of Taking Out a HELOC

Initial Interest Rate and Acquisition Cost

A HELOC, secured by your home, may have a lower interest rate than unsecured loans and lines of credit. The average HELOC rate in August 2021 was 4.1%, according to Bankrate.

Lenders often offer a low introductory rate, or teaser rate. After that period ends, your rate (and payments) increase to the true market level (the index plus the margin). Lenders normally place periodic and lifetime rate caps on HELOCs.

The closing costs may be lower than a home equity loan’s. Some lenders waive HELOC closing costs entirely if you meet a minimum credit line and keep the line open for a few years.

Taking Out Money as You Need It

Instead of receiving a lump sum loan, a HELOC gives you the option to draw on the money over time as needed. That way you don’t borrow more than you actually use, and you don’t have to go back to the lender to apply for more loans if you end up requiring additional money.

Only Paying Interest on the Amount You’ve Withdrawn

Paying interest only on the amount plucked from the credit line is beneficial when you are not sure how much will be needed for a project or if you need to pay in intervals.

Also, you can pay the line off and let it sit open at a zero balance during the draw period in case you need to pull from it again later.

Cons of Taking Out a HELOC

Variable Interest Rate

Even though your initial interest rate may be low, if it’s variable and tied to the prime rate, it will likely go up and down with the federal funds rate. This means that over time, your monthly payment may fluctuate and become less (or more!) affordable.

Although variable-rate HELOCs come with annual and lifetime rate caps, the lifetime cap is 18% in most states, according to debt.org.

Potential Cost

Taking out a HELOC is placing a second mortgage lien on your home. You may have to deal with closing costs of about 2% of the loan amount, though some HELOCs come with low or zero fees. Sometimes loans with no or low fees have an early closure fee.

Your Home Is on the Line

If you aren’t able to make payments and go into loan default, the lender could foreclose on your home. And if the HELOC is in second lien position, the lender could work with the first lienholder on your property to recover the borrowed money.

Adjustable-rate loans like HELOCs can be riskier than others because fluctuating rates can change your expected repayment amount.

It Could Affect Your Ability to Take On Other Debt

Just like other liabilities, adding on to your debt with a HELOC could affect your ability to take out other loans in the future. That’s because lenders consider your existing debt load before agreeing to offer you more.

Lenders will qualify borrowers based on the full line of credit draw even if the line has a zero balance. This may be something to consider if you expect to take on another home mortgage loan, a car loan, or other debts in the near future.

How Do You Pay Back a Home Equity Line of Credit?

During the draw period, you may be required to make minimum payments toward your HELOC. They might be interest-only payments.

Once the draw period ends, your regular HELOC repayment period begins, when payments must be made toward both the interest and the principal.

Remember that if you have a variable-rate HELOC, your monthly payment could fluctuate over time. And it’s important to check the terms so you know whether you’ll be expected to make one final balloon payment at the end of the repayment period.

What Are Some Alternatives to HELOCs?

Motivated by spiking home values and low interest rates, homeowners cashed out nearly $50 billion in home equity in the first quarter of 2021, according to Freddie Mac.

Here are HELOC options.

Cash-Out Refi

With a cash-out refinance, you replace your existing mortgage with a new mortgage given your home’s current value, with a goal of a lower interest rate, and cash out some of the equity that you have in the home.

Lenders typically require you to maintain at least 20% equity in your home (although there are exceptions). Be prepared to pay closing costs.

Generally, cash-out refinance guidelines may require more equity in the home vs. a HELOC.

Recommended: Cash Out Refi vs. Home Equity Line of Credit: Key Differences to Know

Home Equity Loan

What is a home equity loan again? It’s a lump sum loan secured by your home. These loans almost always come with a fixed interest rate, which allows for consistent monthly payments.

Some lenders will reduce or waive the closing costs if you don’t pay off the loan within a particular period—usually three years.

Personal Loan

If you’re looking to finance a big-but-not-that-big project for personal reasons and you have a good estimate of how much money you’ll need, a low rate personal loan that is not secured by your home could be a better fit.

With possibly few to zero upfront costs and minimal paperwork, a fixed-rate personal loan could be a quick way to access the money you need. Just know that an unsecured loan usually has a higher interest rate than a secured loan.

A personal loan might also be a better alternative to a HELOC if you bought your home recently and don’t have much equity built up yet.

The Takeaway

How does a HELOC work? For equity-rich homeowners, a home equity line of credit can give them money as needed, up to their approved limit, during a typical 10-year draw period. The rate is usually variable. Sometimes closing costs are waived.

A cash-out refinance may hold more appeal for some homeowners, and an unsecured personal loan may suit others. SoFi offers both kinds of fixed-rate loans.

Check your rate options in 1 minute.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Getting most types of loans requires borrowers to prove their creditworthiness. To do this, many lenders review an applicant’s credit history and credit score.

Students who may have little or no credit, or even bad credit may be wondering if they’re able to get a student loan. It is possible to borrow a student loan with bad credit. Federal student loans, with the exception of Direct PLUS loans, do not require a credit check.

Private loans, on the other hand, generally do review a borrower’s credit history to inform their lending decisions.

Read on for some more information on the different types of student loans and information on how credit scores are used in a lender’s decision making process.

Getting a Federal Student Loan

As mentioned, when applying for most federal student loans, the status of your credit is not usually a factor. One exception is if you are in default on an existing federal loan, that may hinder your ability to qualify for more federal funding.

In order to take out federal student loans, you first need to fill out the Free Application for Federal Student Aid (FAFSA®). If you are a dependent student, you will also need your parents to fill out their portion of the FAFSA.

Are you a Dependent Student?

Not sure if you’re a dependent student or not? You very likely are if you are under the age of 24, even if you are financially independent and even if your parents don’t claim you as a dependent on their tax forms any more.

If you’re under the age of 24, there are a few ways you wouldn’t be considered a dependent student including if you were legally emancipated, are an orphan, are married, are an armed services veteran, or currently serving active duty, are homeless, or if you have legal dependents other than a spouse.

Subsidized and Unsubsidized Student Loans

The FAFSA is used to determine your financial aid award, including both Direct Unsubsidized or Subsidized Loans.

Subsidized Federal Loans take financial need into account and the federal government will pay the interest that accrues on these types of loans while the borrower is attending college. So, the principal amount that is initially borrowers will remain the same until after graduation.

Recommended: Comparing Subsidized vs. Unsubsidized Student Loans

Unsubsidized Federal Loans don’t take credit history or your financial need into account, and you are responsible for paying any interest that accrues—including while you’re in school and during times of deferment or forbearance.

Another type of federal loan is called the PLUS Loan, and it’s available to parents of students if they want to help fund their children’s college education. It’s also available for graduate/professional students. According to the Department of Education, all Direct PLUS Loan applicants go through a credit check, because a qualification of the loan is that the borrower can’t have an “adverse credit history .”

Getting Private Student Loans

If you find that sources of funding like federal student loans, scholarships, grants, or earnings from work-study will not be enough to fund your education, then private student loans may be another option to consider. Note that private student loans do not come with the same borrower protections afforded to federal loans (such as income-driven repayments or deferment options) and are usually only considered after all other options have been reviewed.

Recommended: A Guide to Private Student Loans

Private lenders are more likely to rely on credit scores and credit history when determining their lending decisions. So if, for example, you currently have a lower credit score, or not enough credit history, you may want to consider applying with a cosigner who has solid credit history, which can help strengthen the loan application. And, if you haven’t really established your own credit history yet, a private lender will also likely want a cosigner for at least two reasons:

•  There is scant record to demonstrate how responsibly you would pay back a loan

•  About 15% of your FICO® Score is based on the length of your credit history (and 90% of lenders use FICO Score when making lending decisions)

Development of Credit Scores

Credit scores were first developed by the three major credit bureaus and the Fair Isaac Corporation (FICO) in the late 1980s and have now been widely adopted by the financial industry. Before the development of such scores, lenders needed to slog through credit reports that were sometimes pages long, and then make lending decisions that, at least in part, were based on these reports. Under that system, it was easier for the biases of lenders to play a role in lending decisions.

With credit scores, information is quickly summarized, and lenders can establish objective requirements about what type of credit is needed before a cosigner is required and/or a loan can be approved.

How Credit Scores Are Used

When applying for a loan, as mentioned previously, about 90% of lenders refer to your FICO Scores as a sort of risk “litmus test.”

Now, let’s say you apply for a private student loan. The lenders will review your application, including your credit score, and they can approve it, deny it, or offer you something different from what you requested.

Lenders will likely look at your credit score, as well as factors like how many loans you currently have, your inquiry history, your payment history, and the amount of time in which you’ve responsibly used credit.

Recommended: Can You Get a Student Loan With No Credit History?

Boosting Credit Scores

Thirty percent of your FICO Score is based upon how much money you owe. This means that reducing your debt may help improve creditworthiness. These tips may also help those who are interested in paying off debt on the way to potentially improving their credit scores:

•  Make monthly payments on-time.

•  Prioritize paying off credit card balance monthly.

•  Consider reducing the interest rate on debt by consolidating credit card debt into a personal loan.

•  Snowball down the debt! With this method, if you have debt spread across multiple credit cards, you’d start by paying off the account with the smallest balance while making minimum payments on the rest. Then move to the next smallest bill, paying as much as you can on that one until it’s paid off, and so forth.

•  Limit the amount of spending done with a credit card.

Another tip: Credit utilization accounts for 30% of your FICO Score. For those who are credit card debt-free, looking into raising credit card limits such that less of the credit available is being used could be another strategy that could potentially result in a bump in credit score.

The Takeaway

Credit scores and credit history can play a big role in a lender’s decisions. They are used to determine a borrower’s creditworthiness and can influence if an applicant is approved for a loan and the types of terms and rates they qualify for.

Aside from Direct PLUS Loans, federal student loans do not require a credit check. However, private student loans usually do require a credit check. As mentioned above, because private student loans lack the borrower protections afforded to federal student loans (like income-driven repayment plans), they are generally borrowed only after the student has exhausted all other options. Those who are interested in applying for a private student loan can consider SoFi, where student loans have no fees and a 0.25% rate discount when borrowers enroll in autopay.

Interested in borrowing a SoFi Private Student Loan? In just a few minutes, find out if you pre-qualify and at what rate.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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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.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

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.

The Takeaway

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 Checking and Savings®, a checking and savings account where you can save, spend, and earn all in one place.

You can easily create vaults within your SoFi Checking and Savings account, each for its own purpose (like one for a car fund).

Get started with SoFi Checking and Savings today to save for your dream car. 

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Your credit card payment is fast approaching, and you’re freaking out. The problem isn’t paying the total balance—it’s that you can’t even afford the minimum required payment. Can you pay a credit card with another credit card? Yes and no.

Most credit card rules won’t allow it—at least not directly. It’s simply too expensive for credit card companies to process these transactions.

There are a couple of indirect ways you can pay a credit card with a credit card: cash advances and balance transfers. Even better, there are longer-term solutions that don’t involve a second credit card.

Avoiding the Issue in the First Place

The best way to avoid a situation in which you are considering using one credit card to pay another is by paying your entire credit card statement balance every month.

Making credit card payments in full and on time will allow you to avoid paying interest.

Paying the statement balance in full each billing cycle also reduces the chance of accumulating debt that is hard to pay off.

At the very least it is important to make minimum payments to avoid negative effects on your credit score.

Recommended: Why is Credit Card Debt So Hard to Pay Off?

Paying a Credit Card With Another Credit Card

Taking a Cash Advance

You can’t pay one credit card with another directly, but you might be able to pay a credit card with a cash advance from another card.

Let’s say you have two credit cards: Card A and Card B. You can’t afford to make your minimum payment on Card A, so you’re looking to Card B for a little help. You have the option to take a cash advance from Card B.

You could use Card B to withdraw cash from your checking or savings account at an ATM. Then you’d deposit that money into your checking account and make an online payment from your bank account or with a debit card.

Pros of a Cash Advance

Taking out a cash advance may be the right option if your situation meets three criteria: You’re trying to pay a small amount on Card A, you already have a second credit card to use for this transaction, and Card B has a lower interest rate than Card A.

Most credit card companies limit how much cash you can withdraw with your credit card per month. If your withdrawal limit from Card B is $5,000, though, and you want to make a payment of $500 on Card A, things shouldn’t get too sticky.

Cons of a Cash Advance

Your credit card company might not allow you to withdraw enough money per month to pay off your other credit card. Your cash advance limit isn’t necessarily the same as your monthly spending limit. Before you take a cash advance, you may want to contact the company that issued your second card to inquire. Or check a statement.

Also, interest usually starts accruing on the amount you withdraw from the moment you take the cash advance. The annual percentage rate (APR) for a cash advance will typically be higher than the purchasing APR on the card. As a result, it’s possible to go even further into debt.

What’s more, you’ll likely pay a fee to take a cash advance. The amount will depend on the credit card company, but you can usually expect to pay the greater of $5 to $10 or 3% to 5% of the amount you withdraw.

Completing a Balance Transfer

If you don’t have another credit card, or your cash advance allowance is too low, you might consider a balance transfer, which would allow you to transfer the balance on Card A to Card B.

Ideally Card B would have a lower interest rate or none at all. You could potentially pay off the total balance more quickly because more of the money you used to pay in interest is going to pay off the principal, or you’re not accruing interest at all.

You may complete a balance transfer only by using a designated balance transfer credit card.

Pros of a Balance Transfer

Certain credit card companies offer balance transfer credit cards with no interest for the first six months or more. When you shop around for a new card, you’ll typically hear the grace period referred to as an “introductory balance transfer APR period” or “promotional period.”

During this period, you can work on paying off your debt without paying any interest.

Cons of a Balance Transfer

While balance transfers may be a godsend for paying off your balance in a set amount of time, what if you can’t nibble away at the total balance quickly?

Once the introductory balance transfer APR period ends, the interest rate will shoot up, and the balance transfer card won’t seem so magical anymore.

If you miss a payment, most companies will suspend the introductory APR period on Card B, and you’ll have to pay what’s known as a default rate, which could end up being even higher than the rate on Card A. Even if you consider yourself responsible enough to make all your payments on time, a financial emergency could throw you off track.

There are also generally fees associated with balance transfers, though they’re often lower than cash advance fees.

It’s worth mentioning that you can’t use balance transfers or cash advances to get credit card points or miles.

What If I Can’t Pay My Minimum?

If for whatever reason a cash advance or balance transfer isn’t available to you, you may still have trouble making your minimum payments. If this is the case, stay calm and assess your situation.

You may want to gather your credit card statements and put your debts in order, either from largest to smallest or from highest interest rate to lowest. This step can help you understand how much debt you’re in and how to prioritize your bills.

You may decide to tackle the largest debts first, or even your smallest to gain momentum. Or you may decide to save money on interest by focusing on credit cards with the highest interest rate first.

You may consider talking to your creditors to see if they can help. A credit hardship program could give you more time to pay off your balance or adjust your terms.

What About a Personal Loan?

Taking out a personal loan is an option for paying off a large credit card bill. A personal loan may come with a lower interest rate than a credit card, and may be more manageable in the long run.

Pros of a Personal Loan

Most credit cards come with variable interest rates, meaning the rate can change over time with shifts in the economy. An unsecured personal loan usually has a fixed rate. (Unsecured means the loan isn’t secured by collateral, like your home or car.)

If you have a good credit score, your rate for a personal loan could potentially be lower than your credit card rate.

If that is the case, you could take out a credit card consolidation loan, then make payments on the loan at the lower interest rate. You’d likely end up paying less in interest over time and might be able to pay back the loan more quickly than you’d be able to pay off the credit card.

Taking out a personal loan also could help your credit utilization ratio, the amount of available revolving credit you’re using. Credit utilization affects your credit score.

Your credit score also is favorably affected when you’re able to consistently pay bills on time.

Cons of a Personal Loan

Taking out a personal loan to pay off a credit card isn’t for everyone. Maybe you’ve realized you have trouble controlling your spending, and that’s why you have credit card debt to begin with. Having a personal loan to fall back on could tempt you to spend even more with your credit card.

Also, a lower interest rate isn’t guaranteed. If you discover that your loan rate could be higher than your card’s rate after inquiring with a lender, taking out a loan may not be the best choice.

No matter how low your personal loan interest rate is, it will still be higher than the rate during an introductory APR period for a balance transfer.

The Takeaway

Can you pay a credit card with another credit card? Indirectly, yes, with a balance transfer or cash advance. While those moves can work in a pinch, each has potential drawbacks.

Taking out a fixed-rate personal loan with a clearly defined payment schedule may be the better long-term option. SoFi offers personal loans with no fees.

Looking to get on top of your debt? Check your rate on a SoFi Personal Loan.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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