Can You Buy A Car With A Credit Card?

Dustin Hawley | Apr 05, 2021

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.

can you buy a car with a credit card

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.

The real question isn’t whether you can buy a car with a credit card; it’s whether you should. There are several reasons it could be beneficial to use a credit card to purchase a vehicle. For instance, you can immediately get the title in your name and attain instant ownership without having a lienholder. Or perhaps you have an enticing reward offer from your credit card company that gives you some sort of appealing benefits for using it.

Regardless of the reason behind why you may want to use a credit card to buy a car, there are several factors you’ll need to consider before making a purchase.

Make Sure You Can Pay The Bill - Find the best car deals!

It seems like it should be something that goes without saying, but many people charge a car to their card and don’t properly account for how they will manage the purchase. 

For example, some buyers use a credit card to buy a car to earn rewards, as noted above. Many creditors offer incentive-laden deals to their cardholders, many of which include offers like 1% cashback on all purchases. For the sake of this exercise, let’s assume you charge the maximum amount that most dealers will accept (a $10,000 down payment). Under these conditions, you would only net a modest $100 reward on this purchase.

And though car financing rates are at record lows, credit card interest rates are not. So unless you can pay off your balance immediately, any rewards you accumulate would be wiped out almost immediately by your credit card’s interest rate.

One exception to this approach would be using a new card with a 0% introductory APR. But while this does save you on interest fees during the initial period, you still need to be careful. Suppose you don’t pay off the balance before the end of the introductory period. In that case, you’ll end up paying interest, which may put you in a tough financial spot and still eliminate any of the benefits that came from making the purchase on your credit card.

Make Sure You Have A High Credit Limit  - Find the best car deals!

To buy a car outright with your credit card or even make a sizeable down payment, you’re going to need an adequate credit limit to make the purchase. If you currently have a relatively low limit, this may require making a call to your bank or credit institution. You can request a credit limit increase, and if your account is in good standing, you may very well have your request granted.

Additionally, if you have more than one card from the same issuer, they’ll generally be willing to transfer some of the credit limits from one card to the other. For example, if you have two cards with a $5,000 limit, you may be allowed to convert them into one card with an $8,000 limit and another with a $2,000 limit.

One important thing to consider before you buy is your credit utilization, which is the percentage of your credit limit that’s currently being used. If you’re 30% or more of that limit is currently being used, your credit score can suffer. So if your card has a $10,000 limit, it’s unwise to spend more than $3,000 of that without expecting a notable decrease in your credit score.

Keep these factors in mind when deciding whether to use your credit card to pay for your car. Depending upon your approach, it may or may not be worth it.

Notify Your Card Issuer Before Purchasing - Find the best car deals!

Whether you are purchasing a car outright or just planning to make a substantial down payment with your credit card, you should contact your creditor first. Call them and let them know you’re about to buy a car and charge a large amount of money to your card. It’s best practice to contact them ahead of time to avoid any hangups. Otherwise, a charge of that size could trigger a fraud alert and hold up the purchase.

Manufacturer Credit Cards - Find the best car deals!

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.

GM is one of the companies that are notable in this space. The automaker has its GM Card, now known as the BuyPower Card from Capital One. Cardholders earn cashback rewards that can be redeemed toward the purchase or lease of a new Chevrolet, GMC, Cadillac, or Buick. You can even use them for service, parts, and accessories at GM dealerships.

Promotional offers are extended, rewarding customers with 5% on the first $5,000 in spending each year and 2% on all spending thereafter. In this instance, let’s say you put $1,000 a month on the card; you’d earn about $315 a year in rewards. It’s not a small sum of money necessarily, but it’s far from the price of a car.

Are There Better Options? - Find the best car deals!

Before you make a major credit card purchase, it’s always important to consider your financial situation and assess whether you are making a wise decision. While it may feel good to earn a substantial reward on your credit card or purchase your car without having to come directly out of pocket, it is not always the best choice. Using a credit card to buy a car makes it very possible to overspend and put yourself in a perilous financial situation if you fail to assess the costs and benefits accordingly before signing on the dotted line.

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. 

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