Buying a car with a credit card might seem like a great idea in principle. There’s no need to worry about filing in any tedious loan paperwork, no sitting around waiting for approval, no need to do anything, in fact, expect swipe your card and drive off in your swanky new motor a few minutes later. Sound too good to be true? It is. Most of the time, in any case. For a start, there’s the fact that not all dealers expect credit card payments. Secondly, even when they do, it’s not always a good idea. Occasionally, you’ll run across instances where it’s both feasible and sensible to make payment via your credit card. However, those instances are few and far enough between for you to think twice before doing it as a matter of course. If you’re considering using your credit card to buy a new car, here’s what you need to know first.
Can I Buy a Car with a Credit Card?
The short answer to the question of whether you can buy a car with a credit card is yes. A lot of dealers don’t really care what method of payment you use: if you’re paying and you’re buying from them, that’s really all that matters. Others are less flexible. Some may not accept credit card payments at all, while others will only allow them to be used towards a certain amount of the car’s total value. To avoid any hassle on the day, always check the dealership’s policy in advance. It could be that they’ll allow you to pay $5000 on a credit card, for example, but will need you to pay the remaining amount via alternate means. According to creditcardinsider.com, it’s best to check anonymously ahead of time so the sales rep isn’t difficult during negotiation. If the dealership confirms they’ll accept credit card purchases, you’ll need to work out if you have a sufficient credit limit to pay on one card only, or whether you’ll need to spread the total cost over several different cards. If the total credit limit across all cards isn’t quite enough, you could either inquire into a credit increase with your credit card provider or think about topping up the payment with a cashier’s check. If you’ll be placing the full payment on one card, it’s worth notifying your credit card issuer in advance. Large payments may get flagged as potentially fraudulent and be declined as a result.
Should I Use a Credit Card to Buy a Car?
Whether you can use a credit card to buy a car is one thing. Whether you should is another thing entirely. While using a card for this kind of big purchase comes with its rewards, it also comes with its downfalls. Being aware of both is vital if you want to avoid making an expensive mistake.
The Pros of Buying a Car with a Credit Card
As MSN notes, using a credit card to buy a car can sometimes be a great idea, especially if you have the funds to clear the balance in full before the interest starts to rack up. If you do, using a credit card makes sense. You’ll earn some great reward points and get the whole thing over and done with as quickly as possible. If you happen to have a credit card with a zero percent interest rate, even better. It pays to be mindful of just how long that zero percent interest period will run for, but providing you have sufficient time left before you start paying interest, and providing you know for certain you’ll be able to pay off the balance before you start, then using your credit card for payment can be a sound choice. As U.S News & World Report (cars.usnews.com/cars-trucks/can-i-buy-a-car-with-a-credit-card) comments, if you have a card with a generous reward scheme, paying with a credit card is certainly worth considering. Even if your credit limit doesn’t stretch to the full amount of the car, using the card for a down payment or for partial payment can still be enough to reap some great rewards. Just be aware that some dealers will charge you for the privilege of using a credit card. Work out in advance just how much you’ll be earning in rewards: if the transaction fee exceeds their value, consider how to proceed carefully.
The Cons of Buying a Car with a Credit Card
While the benefits of buying a car with a credit card might seem considerable, it’s not the best option for everyone. As caranddirver.com notes, there are several red flags to watch out for if you’re considering going the plastic route. Firstly, if you’re not within a period of interest-free credit, make sure you understand exactly what interest you’ll be paying if you aren’t able to pay off the balance with your next statement. For consumers hoping to spread the cost of their new vehicle over several years, it’s usually better to look at other financing options than to risk multiple years of high credit card interest rates. Financing loans may be tedious to apply for, but they won’t sting you for quite so much interest. If you’re intending to transfer the balance between cards at some point, you’ll also need to consider the question of balance transfer fees. With some providers charging as much as 5% on balance transfers, you could end up paying in excess of $1000 if your car is in the $20,000 plus category. Finally, it’s worth considering the impact the payment method you use will have on your credit score. Eating into most of your credit on one payment may impact your credit utilization (the amount of available credit you have), resulting in a ding to your score. As lenders like to see a good mix of different kinds of debt, an installment loan is often a wiser choice from a credit perspective.
Buying a car with a credit card can sometimes be a wise move. But think very carefully before you do. It’s certainly not a sensible choice for everyone, and the pitfalls of using plastic can be huge. If you stand to reap a bunch of reward points for using your credit card, and if you’re certain you won’t have any difficulty in paying off the balance straight away, it’s worth doing. If not, think long and hard about just how quickly those interest payments will start stacking up.