Can You Buy A Car With A Credit Card? (And Is It A Good Idea?)

Cars are expensive, and if you don’t want another loan on your credit report, you may wonder, can you buy a car with a credit card? If you already own a card with a high credit limit and low APR, you may think that it makes sense, and it might.

The good news is that you can buy a car with a credit card, but the bad news is that it doesn’t work for everyone. Not every credit card company or dealer allows it, and even if they do, many factors must be considered before charging a car.

Is Buying A Car With A Credit Card A Good Idea? 

Determining if buying a car with a credit card is a good idea requires careful assessment of the card’s interest rate, merchant transaction fees, credit limit, and budget.

Most importantly, consider your card’s APY. If your credit card has a high interest rate and you won’t pay more than the minimum payment required, you’d probably be much better off financing the purchase with regular auto financing. Since credit card interest compounds daily on the balance, it can quickly increase in most cases, costing you much more than the agreed-upon purchase price. 

In addition to the APR, there are any fees you may pay. For example, many dealers pass along the merchant fee the credit card company charges them for accepting a credit card. Even if it’s 1% – 3%, on a purchase that’s often $20,000+, that’s a significant expense.

If you have a credit card with a low APR and negotiate the merchant fee with the dealer, you should still consider your financial situation. Borrowing too much money on a credit card could damage your credit score. This is especially true if you can’t keep up with your payments or only make the minimum payments.

So, whether buying a car with a credit card is a good idea depends on these factors. It may be a good option if you have a card with a 0% or low APR. But if you have a high APR, will max out your credit card, or won’t make more than the minimum payment, it’s likely not worth it.

Will Car Dealerships Accept A Credit Card Payment?

Some dealerships accept credit card payments, but not all do. Even those that do may not let you charge the entire purchase; they may instead let you charge the down payment to keep their merchant costs down.

If a dealership won’t let you pay the entire amount on a credit card, ask about splitting your payment between cash and card to see if that’s a viable option.

How To Buy A Car With A Credit Card 

If you’ve decided to buy a car with a credit card, follow these steps to maximize your credit card's value.

1. Have a plan

If you buy a car with a credit card, it’s important to have a solid payoff plan. Credit card companies require a minimum payment monthly. This covers the interest for that month but barely scratches the surface of the principal borrowed. If you aren’t careful, your balance could quickly increase to much more than anticipated, making the car cost much more than you wanted.

To avoid this, calculate how much you can afford to pay toward the credit card balance monthly. Keep in mind that the higher your APR is, the more interest you’ll pay. If the amount you pay barely covers each month’s interest, paying the balance borrowed down will be hard.

Instead of focusing on the card’s minimum payment requirement, consider your budget and how much you can afford to pay off the large credit card purchase each month. You should always pay more than the minimum payment due but also pay as much as you can afford to limit the interest charges.

2. Check with your credit card company

Before making a large purchase with your credit card, it’s important to let the credit card company know. Some credit card companies automatically decline large purchases because they think it’s suspicious activity. Letting them know your intention will limit the risk of the transaction getting flagged or, worse yet, declined.

3. Check with the seller 

When you find the car you want to purchase, let the seller know you intend to pay with a credit card. First, this will alert you of any obstacles you may experience if the seller cannot accept a credit card for the full payment.

It will also give you time to decide how to handle the dealer if they try to push dealer financing. You may consider comparing your options if you don’t have a low APR on your credit card. Look at the total cost of the loan from the dealer and then the total cost of using your credit card, given your intended monthly payment.

Don’t focus on the interest rate itself; instead, focus on the big picture of the loan's cost over the term. The key is spending as little money as possible on interest, which may mean using your credit card or the dealer financing option.

4. Buy and follow your plan to pay it off 

After comparing your options, it’s time to finalize the sale. If you use your credit card for the car purchase, be sure to follow up on your intended payment plan. Consider setting up automatic payments so you don’t falter on your plan and end up paying more than necessary in interest.

What Impact Does Buying A Car With A Credit Card Have On Your Credit Score?

Even if you have a 0% APR, buying a car with a credit card can seriously affect your credit score.

First, your credit utilization matters. This is the percentage of your outstanding balance to your credit limit. Using more than 30% of your credit line could negatively impact your credit score.

Simply put, for every $1,000 in your credit line, you shouldn’t have more than $300 outstanding, so you need a high credit line if you want to use a credit card for a car purchase and not damage your credit score.

Second, if you don’t keep up with your payments (even just minimum payments), you could hurt your payment history, which is the largest part of your credit score. 

So, even if you can save money by using a 0% APR credit card or earning credit card rewards for charging a car purchase, the damage to your credit score may not be worth the risk.

What To Consider Before You Buy A Car Using A Credit Card 

Some things to consider before you buy a car with a credit card:

• Other ways to pay for a car: Exhaust all other options before using a credit card to buy a car. Look at dealership financing and how its total cost compares or consider asking a family member to cosign on an auto loan so you get better terms. You can also shop around for the best loan using local or online banks, looking for the loan with the lowest cost.
• Maximizing your credit card perks: If using a credit card makes the most sense, make sure you maximize your credit card perks. For example, if you have a 0% APR introductory period, use it to its full advantage, paying off as much of the balance as possible during that time. Also, consider any credit card rewards you may get for using your credit card, like cash back rewards or miles, and ensure the purchase enables you to earn them.
• Consider a credit card from an automaker: Some automakers offer their own credit cards, which include different benefits. Ask your dealer or contact the automaker yourself to see if there are any options for a branded credit card.

In addition to these considerations, consider the benefits of buying vs. leasing a car before racking up credit card debt. If you don’t drive many miles and like trading your car every few years, leasing may offer you more benefits.

The Bottom Line 

So, should you buy a car with a credit card?

It’s not commonly the best-case scenario, but every situation is different. The key is to look at the total cost of any financing option you consider when buying a car. You should aim to pay as little interest as possible and pay the balance off quickly.

Cars are depreciating assets, and paying interest on loans does not offer tax benefits, so it’s important to understand your budget and the bottom line. If you’re considering buying a car, download the Rocket Money^SM app today to better assess your financial situation and determine whether you can afford a new car.