Can you buy a car with a credit card? Yes, but you have to know how to do it right or it could cost you. This guide will explain how to buy a vehicle with a credit card without getting burned.
To illustrate, here are a couple of stories of doing it right and then doing it wrong.
How to earn credit card rewards with your car down payment
When my wife and I bought our new family car in 2016, we had a few thousand dollars saved up for a down payment. But when we talked with the salesperson about making that payment, I had to ask: Can we buy this car with a credit card?
It turns out, the dealership allowed credit card payments up to $3,000, which is exactly how much we’d saved for our down payment. So, I put the down payment on the card, earned $60 in rewards, then paid off the card the next day with the cash we had saved.
And that’s the thing: Car dealerships typically don’t allow you to pay for the whole car with a credit card. The main reason is that the dealership is on the hook for the merchant fee, which eats into their profits. For example, if you buy a $20,000 car and the merchant fee is 2%, the dealer loses $400 in profits on the transaction.
But some dealerships may be willing to accept a credit card for a portion of your payment, so be sure to ask what you can do, and only use your credit card for an amount that you can afford to pay off immediately.
How not to earn credit card rewards with your car down payment
Tyler Philbrook, a 27-year-old personal finance blogger from Clearwater, Florida, had the same experience, but with a slight twist.
“My experience with using a credit card was also my first experience financing a car,” he says. The dealership he used accepted his credit card for a $1,000 down payment, and he had enough cash to pay it off.
“I had originally planned on just paying the card off with the cash,” says Philbrook, “but young foolishness led me to instead use the cash for other things.”
What’s worse, Philbrook ended up making just the minimum payment on his card and kept using it until it was maxed out. With a 23% interest rate, he paid far more than he ever earned in interest from his purchases, especially the car down payment.
“To pay that off took me about a year,” says Philbrook. “If I could go back, I would either pay the credit card off the same second I ran it at the dealership, or just use the cash in the first place. If I were to give advice, it would be to do that– either pay it off the same day or use the cash in the first place.”
Don’t let credit card rewards blind you
Earning credit card rewards is an exciting venture. But if you let it cloud your judgment, you’ll end up worse off in the end.
As a result, you should only buy a car with a credit card when:
- You have enough cash on hand to pay off the balance, and you have the discipline to do so.
- The dealership allows credit card payments.
- The dealership doesn’t charge a fee to make a credit card payment (this is uncommon but still ask).
If you’ve got these three things covered, you’re in good shape. In fact, you may even want to apply for a new credit card to use the payment to get a big sign-up bonus.
Apply for the card far enough in advance that you’ll receive it before you head to the car dealership.
Shop around and compare top credit cards to find your best rate today.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.