Many people have asked if you are able to use a credit card to purchase a car, and while the short answer is yes, it isn't that simple. There are several factors you should consider before using a card to pay for your next car.
You can buy a car with a credit card, but it can be challenging. You will have to find a dealership that accepts payment by card and then weigh the pros and cons.
Read on to discover how and when to buy a car with a credit card.
Buying a Car with a Credit Card
There are many reasons people start using their credit cards more regularly and for larger purchases. One of these reasons is to build credit, but a primary reason is to get rewards. If you are going to be making the large purchase anyway and paying it off, it may be to your advantage to do so with a card. This is particularly true if you want to travel and have a card that offers rewards in the way of miles and other travel incentives.
Before committing, make sure you are getting an excellent price on the car, as that is more important than credit card rewards. That being said, using your card for big purchases can be an excellent way to take advantage of the rewards offered.
How to Buy a Car with a Credit Card
You should always negotiate your car's price before deciding how to pay for it. This is true whether you are paying cash, leasing, financing, or using your credit card card for the purchase. Just by stating how you plan to pay, your dealer may increase the price they charge to make up for the fees. In some cases, a processing fee will be the policy, so keep that in mind.
You may receive resistance, and you will need to seek a manager. Be pleasant and remind them that when credit cards are accepted for some transactions, they must be accepted for all. This is according to many merchant credit service agreements. Be firm but polite and give the option for compromise and only use your card for a portion such as the down payment. Your power comes from your ability to walk away from the sale.
If you have decided that purchasing your car on your credit card is the smartest option, there are a few pointers to ensuring the transaction goes as smoothly as possible. Remember that dealers don't want to accept cards because of the fees and because of the rights customers have when they feel a seller wronged them. We will take a closer look at this further in the article.
Because of this, you will want to carefully weigh why you want to purchase the car on your card against what you will be paying to do so. Look carefully at the interest rate, processing fees, and any other fees charged. Consider what will happen to your credit if the card balance is not taken care of quickly.
You also need to check the fine details of your card purchases. There are many cards that have limits on miles and reward points, as well as cashback benefits you can get in one month. Some cards don't allow benefits to be earned on any purchases involving motor vehicles. You need to make sure you carefully read through everything before moving forward with the purchase. Those cards that offer to double your manufacturer's warranty fee often exclude cars from these incentive programs.
Do Car Dealerships Accept Payment by Card?
This varies from dealership to dealership. There are some dealerships that accept down payments by card and some that will even take the full value on the card, while others don't accept credit cards at all.
These decisions are partially based on the credit card processing fee ranging from 1% to 3.5% of the amount being charged. On larger purchases, these fees add up. For instance, consider a $40,000 car purchased by credit card at a 3% processing fee. You pay $1,200 in fees for one transaction. This is before you accrue any interest on the same purchase.
To avoid these fees, dealerships encourage and accept other payment methods, such as personal checks, ACH transfers, money orders, cashier's checks, and of course, cash.
Can You Buy a Car with a Credit Card to Get Points?
Whether or not you can get benefits for purchasing your car on your credit card varies with each card. You will need to make sure to check all the rules before you purchase the car this way.
Some will allow the purchase but not allow it to count toward cashback or travel rewards. On the other hand, some companies provide extra incentives for working with car makers such as GMC or Chrysler.
Why Do Dealerships Not Accept Credit Cards
Car dealerships, like any business, want to make sales and achieve quotas. They want to do this with the highest profit and the least amount of stress. Accepting credit cards can make the sales happen but it does come with a price.
Card services charge processing fees between 1% and 4% to complete transactions. With car purchases, this can run into the narrow margins dealerships have.
In addition, credit cards come with chargeback rights for their clients when they feel a seller has wronged them. When a transaction is disputed, customers can delay paying a dealer for weeks to months. This is often too much risk for most dealers to accept.
Finally, debt on a credit card is considered unsecured. If a car is purchased through a credit card, the bank can't repossess the car in the case of payments being missed. Meanwhile, a traditional lender can take your car into possession when you don't pay.
When to Use Your Card to Purchase a Car
There are some situations when a credit card used for part of your new car purchase can be a smart financial move. Cards with good benefits are prime candidates, especially when you have the money set aside for the entire purchase when your next bill is due. This is a very smart way to play the rewards game and take advantage of your credit.
However, be sure to carefully do the math before making the purchase. If you decide to put $10,000 on your card at a 1% cashback reward, you will only get $100. This may not be more than what your creditor charges you to use these services.
When using cards with travel rewards, try to put a monetary value to the benefit. For example, look at the value of the hotels and air miles you will get and compare these to the fees you pay.
For those who have excellent credit, there are extra rewards they can earn for the initial months of purchases when qualified for introductory bonuses. For example, Chase Sapphire Preferred Card is offering 50k in bonus points when $4,000 is spent in the first three months of having the card. This is equal to $500 cashback or $625 in benefits for travel. Even so, you need to make sure to weigh the rewards against the fees you pay with this card as well.
When you are purchasing a lower-end car, say under $5,000 and get ample benefits for putting in on your card, it is likely going to be a good idea to purchase this way.
Keep reading: Missed Car Payments and Repossession
When You Shouldn't Buy A Car on Your Card
When the money doesn't make sense, don't put it on your card. For instance, if you will pay more in credit card fees and interest than what you will get in benefits, you shouldn't take the extra step of purchasing the car on your card.
You also shouldn't consider putting your car on your card if you do not have the money to pay it off when you get the statement. This could lead to a negative hit on your credit and more fees. Remember that credit cards typically have interest rates of at least 15% or so, so you do not want to carry the balance of your car on it.
You also shouldn't consider putting a car on your card if you think you may have trouble with purchases. Those struggling with debt shouldn't put any more on credit cards, especially large purchases like cars that instantly affect your income.
While you can likely get part of your car on your card, such as the down payment, policies will vary from dealership to dealership. Some won't accept credit cards at all. You need to weigh the pros and cons of putting your car on your card. It may cost you in interest and can potentially negatively affect your score if you don't pay it off quickly.
Before you decide whether to buy a car with a credit card, sit down, and read the fine print on your credit card's rewards program. Then, pull out your calculator and compare the cost versus the rewards. Just make sure that you can pay the credit card off right away if you use it; otherwise, you will quickly accumulate interest.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.