There are a few primary reasons someone might consider using a credit card to buy a car. They may want to earn points, miles or cash back rewards on a large qualifying purchase. They may be looking for an alternative payment method other than applying for and securing a loan. Or, they’re looking to bridge the gap between the total cost of the vehicle and the amount they’ve saved.
Although buying a car with a credit card may seem like a convenient and simple solution, that’s rarely the case. Dealers may not let you pay for the entire purchase with a card. If it’s allowed for a portion of the car’s down payment, there’s still significant risk involved.
Let’s learn more about buying a car with a credit card, including its downsides and some potential alternatives you may have.
Is buying a car with a credit card possible?
While you can typically use a credit card for just about anything, car dealerships may not accept credit cards as a way to make the full payment on a car. Dealers may, however, accept a credit card for a car down payment or partial payment even if they limit full payments.
For any credit card payment, the dealership may also charge you a fee to account for processing fees on their end. If you’re purchasing from a private seller, they’ll most likely not accept credit cards for any portion of the payment.
Risks of buying a car with a credit card
There are several risks to buying a car with a credit card. Most significantly, your interest will start to add up if you don’t have a plan to pay off your full statement balance. This means using a card could quickly become more expensive.
There’s also a risk of lowering your credit score. A large purchase like a car could raise your credit utilization and may negatively affect your creditworthiness.
Dealerships may also impose certain restrictions that make paying with a card more difficult. These could include:
- Limits on how much you can charge to your credit card
- An additional convenience or processing fee
- Accepting a card for down payments only
Additionally, your card’s credit limit may not cover the full car payment, which means you’ll still have to find other methods for any unpaid amount.
How to use a credit card responsibly during a car purchase
If you’re set on using a credit card for all or part of the transaction, do so responsibly.
Confirm your dealership accepts credit cards. Find out how much they’ll let you charge to a card. Policies differ across dealerships, so be sure to do your research ahead of time.
You’ll want to pay off the amount charged to your card as soon as possible so as not to accrue interest. You should also be aware of your credit card limit and whether the amount you’re planning to cover is within it.
Alternatives to buying a car with a credit card
When it comes to a car purchase, traditional auto loans typically offer more favorable payment terms than credit cards. However, if you’re worried about a down payment, you can try tapping into your savings or using cash if it’s available. Trading in your current car and putting the purchase price towards your new car may also help lower the overall cost.
If you don’t have enough funds to cover the down payment, you may want to consider saving until you have enough to do so. That way, you won’t end up with unnecessary interest charges and further damage to your credit that could make it more difficult to obtain loans and credit cards in the future.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
