Can You Buy a Car With a Credit Card?

Buying a car with a credit card is an attractive option. You could earn rewards points, and you don’t need to apply for an auto loan. If the dealer accepts card payments and the total car cost is less than your credit limit, you could buy a car with a credit card. But in most cases, you can’t buy a car with a credit card. 

The answer to the question, “Can you buy a car with a credit card?” is yes, in some cases. Read on to understand when to buy a car with a credit card and whether you should. 

Can You Buy a Car with a Credit Card?

In theory, if you have a large credit line and want to buy an inexpensive car, you could purchase it with a credit card. For example, if you qualify for a 0% annual percentage rate (APR) introductory credit card offer, you could spread the payments out over a year and not pay any interest. But in many cases, a new or used car costs more than your credit limit. 

Consider two scenarios to determine when it makes sense to put a car on a credit card. First, most lenders won’t let you use a credit card to repay an auto loan. In that case, you’re swapping one form of debt for another. It indicates financial instability and means the lender takes on the additional risk that you could default on the loan. 

The exception is GM Financial, which allows borrowers to pay with a credit card through Western Union Co. But Western Union charges high fees, and the card issuer might also charge a cash advance fee, making this a last-resort option. Some third-party services can help you pay by credit card, such as Plastiq, but its fees also don’t make it a good option for regular payments.

If you want to pay for a car in full by credit card, some dealers will allow you to make the purchase. For example, if you want to buy a car for $10,000 and your credit card has a $20,000 limit, you could purchase the car on credit, assuming the dealer accepts credit cards.

In this example, if you could purchase the car with a 12-month 0% APR introductory offer and pay $834 monthly toward the credit balance, you’d own the car debt-free and interest-free at the end of the year. 

But most new car dealers don’t accept credit cards because of credit card processing fees or for other convenience reasons. For example, Tesla Inc. accepts credit cards, but only for the initial order fee. In terms of used cars, credit card policies vary by dealer. Some online used car dealers, such as Vroom Inc. and Cars24, accept credit card payments, but others, like Carvana and CarMax Inc., do not. 

You can research local dealerships to find out which ones accept credit cards and find out about any restrictions or limitations they have to credit card use. 

How to Buy a Car with a Credit Card in 5 Simple Steps

If you’re ready to buy a car with a credit card, here are the steps to take:

Step 1: Check with the Dealer or Seller

Start by contacting the dealer or seller to ensure it accepts credit card payments for vehicles. If you’re purchasing a new car, some dealers offer their own branded credit cards, including General Motors, BMW and Lexus. They may allow you to use these cards for an initial down payment. 

If you plan to purchase from an individual seller, ask them about alternative payment methods like PayPal to pay by credit card. If you’re purchasing with a dealer, ask about any limitations or maximum transaction amounts for credit card purchases. 

Step 2: Verify Credit Card Limit and Terms

Next, you should double-check your credit card’s limit and confirm it covers the cost of the car. Check with your credit card issuer to understand limitations or maximum transaction amounts for credit card purchases. You could request a credit line increase or a temporary increase at this stage. To ensure a smooth transaction, inform the credit card company of your planned purchase so it doesn’t block it if it appears unusual.  

Remember that you may have to pay a higher interest rate with large transactions. If you’re not able to pay off the car purchase right away or before a 0% APR period ends, you’ll be faced with interest and potentially extra fees. Verify this information with the credit card company before making the purchase to avoid unexpected expenses. 

Step 3: Negotiate the Deal

Once you know the maximum you can pay, it’s time to negotiate. Negotiations are important even if you’re paying by credit card. You should research similar cars and fair market value. Then weigh the condition of the vehicle in the negotiation. Do the tires need to be replaced? Is there rust or other visible signs of wear? 

Come prepared with research on sale prices for comparable vehicles and why you think they should sell to you for less. To address the potential hesitations of sellers to accept credit cards, offer to cover additional processing costs if needed.

Step 4: Complete the Transaction

Once you’ve agreed on a price, it’s time to close the deal. Ensure all necessary documents are in order before completing the purchase. Depending on the seller and whether it’s a dealer, you might need to fill out and sign a credit card authorization form with your card details and provide identification. 

Generally, the dealer will fill out any additional paperwork and registration to transfer the car to your name. Allow at least an hour for this process. 

Step 5: Repay Your Credit Card Balance

Remember only to charge what you can pay off, as credit cards’ high APRs make them a bad option for an auto loan. If you don’t have a 0% APR offer, pay off the credit card in full when the bill is due, usually within 30 to 60 days from the purchase date. Avoid high-interest charges by paying off the balance promptly and not carrying the debt for an extended period.

If you get a 12-month 0% APR introductory offer, you could spread out payments over several months or a year. Just be sure to pay the balance in full before interest is due.  

Is it a Good Idea to Buy a Car with a Credit Card?

Generally, buying a car with a credit card is only a good idea if you already have the cash to pay it off in the bank. Purchasing a car with a credit card comes with significant risks, including:

Your Credit Limit and Credit Utilization

First, it’s essential to assess your credit card’s limit to determine whether it can cover the full cost of the car. If not, the purchase will be rejected.

Second, it’s important to understand the credit utilization ratio, which makes up 30% of your credit score. Generally, a credit utilization ratio below 30% is considered acceptable and below 10% is ideal. That means that if your total available credit on all credit cards is $20,000, you wouldn’t want to charge more than $6,000 (30%) on the cards unless you plan to pay it off immediately. 

Using a significant portion of your credit limit will directly affect your credit utilization ratio and, in turn, can hurt your credit score. If you plan to apply for a mortgage, a business loan or make another large purchase shortly after the car purchase, the lowered credit score can hurt your chances of qualifying with favorable terms. 

High Credit Card Interest Charges

The potential consequences of carrying a balance on the credit card used for the car purchase are enormous and could trap you in a cycle of debt. The high-interest rates associated with credit cards, particularly for large purchases, could be over 30%. If you purchase a car for $10,000 and have to pay 30% annual APY, that’s an extra $3,000 added to the purchase price every year.

If you have even the slightest doubt about your ability to pay off the car in full before it starts accruing interest, it’s better to consider alternative financing options with lower interest rates, like auto loans or personal loans.

Rewards Potential

The potential benefits of using a credit card for a car purchase, such as rewards points, cashback or other perks, are often outweighed by other fees. The notable exception is when you’re trying to reach a minimum spend target on a new credit card to get a significant reward. 

For example, if the card requires a minimum spend of $4,000, you could pay that portion of the car on the credit card to access those rewards, often worth $1,000 or more. The same caveats apply: The rewards aren’t worth the interest you’ll pay if you cannot pay off the credit card in full. 

Likewise, if you have a credit card that offers 5% cashback on vehicle purchases (they’re rare), even if you’re charged a 3% processing fee, you’ll earn 2% cashback. On a $10,000 purchase, that’s $200. But, those advantages are negated by even one month of interest accumulation if you can’t pay off the debt. 

When to Buy a Car with Credit Card

You should buy a car with a credit card when three conditions are met:

• The seller or dealer accepts credit card.
• Your credit card limit is greater than the purchase price of the car.
• You can pay off the debt in full before you start accruing interest.

If any of these conditions aren’t met, the transaction won’t go through, or will it be a financial mistake. But if you meet all three, you could earn extra credit card rewards, cashback and the simplicity of purchasing a car on your own terms. 

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