Can I Buy a Car With a Credit Card?
A new car is an expensive purchase, so you may be wondering about all of your payment options. Most people opt for auto loan financing, as it doesn't require having the full amount of cash on hand to buy the vehicle. However, even with a loan, buying a new car will cost you money in the form of a down payment, fees, and any additional services.
Using a credit card is a convenient option for car shoppers who don't have all the cash they need to buy a car. However, it's unlikely that a dealership will take a credit card for the full price of a car since businesses have to pay transaction fees (usually around 2-3%) for credit card payments.
When can you use a credit card when buying a car? We'll go over the ways you might use a credit card when buying a car. We'll also explain some of the other factors you should pay attention to when considering using a credit card in a car purchase.
Will Dealerships Accept Credit Cards as Payment?
Every dealership is different, but in general, most places will allow you to buy a car with a credit card. However, most dealerships don't allow you to pay the full price of a car with a credit card. Instead, you will typically be allowed to pay for different portions of the purchase, such as the down payment, associated fees, and any add-on services or contracts.
If you choose to go with a loan, the down payment will require the most upfront cash for the car purchase. While it depends on your specific situation, the recommended down payment for a car is between 10-20% of the price. If you buy a car that is $30,000, a good down payment would be $6,000.
For a sizeable down payment like $6,000, dealerships may pass the credit card transaction fee back onto you. So, you'll want to consider if using a credit card is worth paying the extra cash.
A service contract is a type of protection plan for your new car that ensures you won't have to pay for expensive repairs. The price of these contracts vary depending on the dealership. But the average cost of service contracts varies widely usually between $1500 to $4000. Due to the high pricing of service contracts, you may need to consider a credit card to pay for it. Some dealerships even offer their own financing specifically for services.
Many car shoppers don't think too much about the additional fees that will be tacked onto the total purchase price of their new car. Though these fees are small compared to the price of the vehicle, it's a good idea to prepare for these costs. You'll have to pay a vehicle registration fee, sales tax, and a documentation fee. You may want to consider putting some or all of these fees on your credit card instead of paying cash.
What Are Other Factors You Should Consider?
If you're curious about the pros and cons of paying a portion of your car purchase with a credit card, you should consider some of the other factors involved. The right choice will depend on an individual's personal situation, the vehicle, and the limitations of the credit card. Ultimately, you'll want to avoid paying extra fees, high-interest rates, and lowering your credit score.
One negative aspect of paying with a credit card includes high-interest rates. Credit cards typically charge high-interest rates, so if you can't immediately pay off the charge, you'll end up paying more money over time. However, the APR will vary based on the bank and the card. If you have a card that has a 0% APR for an initial period of time, you might be able to pay it off before you need to make any payments toward interest.
You should also be aware that most credit cards have spending limits. If your credit card limit is low, you may not be able to pay for a car. Even if you can technically put the charges on your card, you may not want to. Your credit utilization is one of the factors used to determine your credit score. If you use too much of your available credit, your score will be lower. In order to keep a good credit utilization ratio, you should only ever use 30% or less of your available credit.
Another reason why you may consider alternative financing to using a credit card is the risk of negatively affecting your credit score. Missing payments or having a bad credit utilization ratio will adversely affect your credit score. If you decide to buy a car with a credit card, you'll need to have complete surety in your ability to pay off these charges.
If you want to buy a car with a credit card, you could potentially earn a lot of rewards. Many credit cards offer incentives for making purchases with the card (cash back, flight miles, etc.). However, it's important to not get caught up in the rewards system. You may end up paying more money for the interest and fees than what the rewards are actually worth.
Most dealerships allow customers to buy a car with a credit card or at least a portion of the car. You can choose to use the card for the down payment, additional fees, or service contracts. However, you should be aware of the risks, limitations, and downsides of using your credit card for this purchase. If you want to learn more information about our dealership's in-house financing options, contact our team with your financing questions.