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.
For these reasons, it is not recommended to buy a car with a credit card.
Do car dealers accept credit cards?
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 may 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.
Can you use a credit card for a car down payment?
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.
However, this option is solely up to the dealer's/lender’s discretion, so contact them to find out what their policy looks like when it comes to credit card payment options. Even if they allow it, this is not recommended because such a large transaction may use up much of your available credit, and if you carry a balance, especially a large one, you may face hefty interest charges.
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.
Should you buy a car with a credit card?
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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Putting your dinner tab or a pair of shoes on a credit card is pretty typical. Using a credit card for a down payment on a house or car, however, is not — the APR on credit cards is generally considerably more than on a loan — even a subprime loan.
Because of the hefty credit card APR that’s often associated with big purchases — on both the seller’s and buyer’s ends — using a credit card for a down payment might not always be the best route, even if you have a great rewards card. Review these examples of how and when you should and shouldn’t use a credit card for a down payment.
Should You Use a Credit Card for an Auto Loan Down Payment?
For the first time ever, auto loans rose above $1 trillion in 2016. The total balance of open car loans rose to over $1 trillion in Q1 of 2016, up from $905 billion during the same time last year, according to Experian’s State of the Automotive Finance Market report.
Along with all these loans comes a lot of down payments. Making a down payment can be tricky if you’re strapped for cash — or it can be an opportunity to rack up credit card rewards if your card offers them.
Before you start planning your vacation with all those rewards you’ll get, make sure the car company lets you pay by credit card. Some do and some don’t.
CarMax, for example, doesn’t allow buyers to use credit cards for down payments. You can make the payment with a debit card, check or cash — but not a credit card. Ask the all-important question before you head to the lot: “Can you buy a car with a credit card at your dealership?”
Car dealerships don’t allow credit cards as a form of payment for a couple of reasons. They have to pay transaction fees — which average from 1 percent to 4 percent of the purchase price — to credit card issuers, which eats into their profits. In addition, credit card holders have chargeback rights, which gives them the right to ask for a refund if they feel they’ve been wronged. For example, you could put your transaction into dispute and it would delay payment to the dealer for as long as the credit card company is investigating it. Dealers typically don’t want to take on that much risk.
Dealerships that do allow credit cards for down payments often charge convenience fees, so ask about fees before you swipe.
Sky-high APRs for credit cards can make it too expensive to charge an entire down payment if you can’t pay off the balance right away. To avoid unnecessary credit card debt and high interest rates, consider saving up for a down payment rather than charging it.
Find Out: Dumb Credit Card Mistakes You’re Making
How to Use a Credit Card for a Down Payment on a Car
If you have enough available credit to pay for the down payment on a vehicle, call dealerships to find out if they accept credit cards as payment and if they have a limit on credit card usage. Although some dealerships might accept credit cards, they could have a cap on how much you can charge.
You can also use a credit card to get a cash advance and use the money toward your down payment. This can be a costly way to use your credit card, but it will work.
Before you treat your credit card as an ATM machine, however, research its cash advance fees. Some card companies will charge you a flat rate and others will charge a flat rate plus a percentage of the transaction.
Also, if you get a cash advance on your card, have a repayment plan in place. Cash advances usually accrue interest, which you can minimize by paying back the advance as soon as possible.
See: Best Cash-Advance Credit Cards With Low Fees and Low Rates
Should You Make a House Down Payment With a Credit Card?
Technically, you can make a down payment on a house with a credit card if you get a cash advance. If the house is cheap enough and your credit limit is high enough, you could even buy the whole house on your card, according to Nasdaq. If you have an FHA loan, however, you likely won’t be doing this — these loans are designed to prevent homebuyers from getting into mortgage loans they can’t afford, and using a credit card as a down payment might be a red flag.
Mortgage servicing companies typically don’t allow you to pay for your mortgage each month on a credit card for the same reasons as dealers don’t like to let buyers use credit cards as down payments. If you really want to pay your mortgage with a credit card, however, you can use a third party like Venmo or Tio, which will do that for you — for a fee. Check out those fees before you make a decision.
How to Come Up With a Down Payment on a House
Instead of paying hefty cash advance fees and high interest, there are other ways to get money for a down payment. Depending on your employer, you might be able to get a loan from your 401k.
You likely are wary about delving into your retirement savings — for good reason — but if you’re investing in a home and need a down payment it might be a good time to tap into them. Check with your plan’s administrator and get all the details about taking out a 401k before you make a decision. Because plans’ — and employers’ — rules differ, it’s crucial to know how taking a loan will impact you financially.
Learn: 7 Times It’s OK to Dip Into Your Retirement Fund Early
Using a credit card to make a down payment is probably not the best financial decision because the interest rates are almost always higher than even those on subprime loans. If you want to use your card so you can take advantage of generous rewards programs, remember that paying off your credit card balance before that interest kicks in is key — otherwise, you might negate any perks you stood to gain.
Barri Segal contributed to the reporting for this article.
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