Can You Buy a Car With a Credit Card?

Buying a car is an experience unlike anything else. But the way you pay for the car will lead to different experiences. You can pay with cash, check, or cards. You can also pay through EMIs, which let you pay in monthly installments until you reach the car’s total cost plus interest. But what about credit cards? Can you use them to buy cars? If so, what are the requirements? In this article, we’ll explain everything you need to know.

Can You Buy a Car With a Credit Card?

Whether you can use credit cards for your car payment depends on multiple factors. The two most important ones are your credit card limit and whether the auto dealer accepts it. Banks usually have no restrictions on where you can use the credit card as long as you have sufficient credit. But they do recommend only using 75% of your total limit to maintain a good credit score.

You need to have sufficient credit to cover the initial cost. The cost can be either a down payment or the total cost of the car. Depending on the dealer, you’ll be able to put all or some of the down payment on your card. So if the down payment is $50,000, your credit card limit at the time of purchase must be above $50,000. But it’s the dealer who decides how much you can put down because they’re also charged a merchant fee for accepting and processing your card. So they’ll definitely want to limit their own expenses.

But if the dealer doesn’t accept credit cards in the first place, the limit doesn’t matter. Also, they may have restrictions on certain banks. So, a credit card issued by a certain bank might not be eligible for the payment.

You should consult with the car dealer on whether or not you can buy a car with a credit card. But generally speaking, if you have sufficient credit and the dealer accepts the card, you should face no problems.

Which Credit Card Should You Use?

If you’re going to buy your car with a credit card, you need to remember that not all credit cards are created equal. The transaction will be more expensive with some cards than others.

Some credit cards are meant to be used for buying a car. They are designed to carry fewer charges on your purchases. The American Express Auto Purchasing Program is one such card. The card will connect you to over 10,000 dealers across the country. So your car buying process with this type of credit card will actually get easier.

If you’re looking to get a new credit card, look for cards that have 0% APR. APR stands for annual percentage rate, which is the interest rate applied to your card if you carry a balance. With zero APR, you will carry no interest rate on your purchases. But this is usually limited to a certain period, like three or six months. But this is a good way to avoid extra fees on top of the price of your car.

Another factor you need to consider is the reward points offered. When you use a credit card for making big payments, you’re often rewarded with points or similar virtual currency. You can later redeem them for cash or discount coupons. The AmEx Business Platinum Card offers a welcome bonus of 75,000 points if you spend $15,000 or more within the first three months. This is a great way to earn points to redeem for cash benefits.

Therefore, you should consider these factors when deciding on a credit card.

How Buying a Car With a Credit Card Could Affect Your Credit Score

When you’re considering buying a car with a credit card, you might be worried about your credit score. And the fact is credit card usage does affect your credit score. The factors that affect it the most are how frequently you use the card, if you’re spending beyond the safe limit, if you’re making timely payments, and if you’re meeting the interest rates. Your credit score is affected if you miss payments.

When using a credit card to pay your car fees, you’re using credit, not taking up a car loan. Car loans are different from a credit card, even though both operate much or less the same way.

When applying for a loan, banks will look at your credit history and credit score. But not in the case of a credit card.

If the creditors make inquiries to credit reporting companies, then your credit card score might get affected negatively.

When Should You Buy a Car with a Credit Card?

Before choosing a credit card as your method of payment, you should research the options available. Perhaps you’re eligible for a car loan that does not require you to pay any additional charges. Perhaps the auto dealership is offering a price that your debit card can cover. This way, you do not have to use a credit card to make the payments.

On the other hand, if your credit card has 0% APR, can connect you to dealers in your area, has running offers with discounts, or has high rewards that are offered on a big purchase, it’s safer to use it for making the car payments.

Also, you need to calculate whether you have ample cash to cover the credit card fees. Most cards have a time frame of 50-60 days within which you need to clear off your debt. If you don’t, then interest charges begin, which can balloon your overall car price. Therefore, you need to proceed with precaution and planning.

Paying Monthly EMI With Your Credit Card

If you’re not covering the full cost or the down payment, you may wish to pay via EMI. If he accepts, the auto dealer will charge your credit card on a monthly basis. This is a good way of paying off the fees over time if you can’t pay the entire amount all at once.

But you’re going to pay this amount eventually from your debit card or bank account. And in the process, your credit card will be charged a balance transfer fee for each transaction. Your credit card issuer will send you a balance transfer check, which you can use to pay the monthly fees. This check is similar to a regular check but is tied to your credit card.

Even if you have a 0% APR card, you’ll be levied some form of charge for these types of payments.

Conclusion

The bottom line is, yes, you can buy a car with a credit card, but you need to take necessary precautions to ensure you don’t run into high-interest fees. Incurring high fees with the mismanagement of credit cards is easier than you think. So, proceed only after a consultation with your credit card issuer and an auto dealer.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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