Should I buy a car with a credit card? While some car dealerships accept credit cards, negotiating a car purchase using this method can be a risky move.
Some car dealers accept a down payment, however, you have to keep in mind that policies differ according to the dealer. While there might be some benefits to using your credit card to buy a car but the increasing interest rates could potentially hurt the credit scores that you’re trying to build.
Some car dealerships allow credit card payments for the entire purchase price of a new car. However, as I mentioned earlier, there are car dealers who accept a portion like a downpayment but some car dealerships don’t do so entirely.
If you’re planning on buying a credit card online, then this article is for you. We’ll also give you some tips on how you can pay for your entire car purchase should you decide not to use your credit card at all.
Can you buy a car with a credit card at a dealership?
Every car dealership has its policy with its payment method. Some allow an entire down payment while others entire car purchase. One of the reasons why this is, it’s because it involves a credit card processing fee which could amount to 1% to 3.5% of the entire purchase price.
Likewise, processing fees can quickly add up, especially when a large purchase is involved. In perspective, a 3% processing fee for a $30,000 car bought with a credit card could amount to $900 for a single transaction.
Hefty card processing fees prevent many car dealers from implementing this method. For this reason, they choose other modes of payment like money orders, ACH transfers, cashier’s checks, personal checks, or cash.
But if you want to proceed with using your credit card for a car loan, here are some of the important things you need to consider before making the big decision.
Prepare for hefty monthly payments
Many people tend to make major financial decisions using their credit cards but they never properly account for their financial situation if they can afford the additional costs of owning a new car.
In some situations, buyers use their credit cards when buying a car because of credit card rewards. The majority of credit card issuers offer incentive deals to cardholders like a 1% cashback for all their purchases.
Here’s an example, a $10,000 down payment for a car which is the maximum amount a car dealership would accept will bring you a $100 reward.
While car financing rates are currently at record lows, however, it’s the opposite for credit card rates. So, if you wanted to proceed using your credit card, make sure you can pay off your balance in time.
Otherwise, any reward you collected will be wiped off almost instantly because of the high-interest rates incurred with the purchase. On the other hand, it’ll work out if you have a new card that has a 0% introductory APR.
But make no mistake because even if this method saves you from interest fees, you still have to make sure to pay off the balance before the introductory period ends. Not paying the balance on time will lead you to a difficult financial situation.
You’ll be forced to pay interest and at the same time disqualify any benefit that should have been made through any of your previous credit card purchases. This will ultimately defeat your purpose of getting rewards.
Do you have a high credit limit?
Do you have an adequate credit limit? If you choose to buy a car with a credit card you’ll be required a sizeable down payment or a high credit limit for the purchase to succeed. Otherwise, you need to call your credit card company and request a credit limit increase.
On the other hand, if you have another card for the same credit card issuer, they can transfer the limit of the other card to the one you choose to use. Here’s an example, if you own two cards with each having a $5,000 limit, you request the credit card company to convert them into a single card with one card increasing its limit to $8,000 while the other will have a $2,000 limit.
Additionally, you have to consider the credit utilization ratio before you proceed with the purchase. This is the percentage of your currently used credit limit. For example, if you’re 30% beyond the limit, your credit score is compromised.
With that said, it’ll be unwise to pay more than $3,000 if you only have a credit limit of $10,000. Make sure to think about these factors before you decide to use your credit card when buying a car.
Call the credit card company
When planning on using your credit card to purchase a car or making a considerable amount for a down payment, take the time to talk to your credit card issuer first.
Let them know that you want to charge a huge amount to your card. This is a good practice that will ultimately prevent any hangups. Failure to do so could result in a fraud alert that the credit card company would be forced to put the purchase on hold.
Look for manufacturer credit cards
This is a more viable option because just like every other credit card, this will help you collect rewards for every purchase you make. Even better, these rewards can be used towards your goal of buying a new car.
However, this option will only work if you have a high credit score. For example, General Motors has a GM Card also known today as BuyPower Card. It’s one of the biggest companies that offer a manufacturer credit card option. However, you need to spend a lot of cash first before you can gather the exact number of rewards for buying a new car.
A few alternatives instead of buying a car with a credit card
Car financing charges a slightly lower interest rate compared to using a credit card for an auto loan. You can try an auto loan calculator to know how much interest you need to pay for your monthly payment.
Look for a co-signer
A co-signer could help you get qualified for a car loan and lower your monthly payment. When looking for a co-signer, make sure that the person agrees to the term and he has good credit scores.
Consider a trade-in
Do you have an existing car that you can trade in? You can use that car as a downpayment for a new car.
Pay with cash
Saving up enough cash instead of buying impulsively using your credit card is still the best way to buy a car. While this might be a long way to driving the car of your dreams, it’s much better than compromising your financial health. Also, you can opt for a less expensive car until you can afford the new one instead of using your credit card.
Before you use your credit card to buy a new car, make sure to consider the pros and cons first. In case you want to proceed with the deal, make sure you can pay off your monthly payments, otherwise, it’s going to hurt the credit score that you’re ultimately trying to raise.
Likewise, you can shop around to compare prices and see if there are other offers from different car dealers. You can also apply for a prequalification to help you get estimated interest rates and other loan terms. But be aware that prequalification doesn’t guarantee the loan approval and loan terms could change after you completed the application.