While it may seem unusual to the ordinary consumer, there is no legal prohibition against purchasing a vehicle using a credit card. You may make a down payment or even make a whole purchase with adequate available credit, as long as your credit limit is high enough.
Having said that, many dealerships have a credit card payment dollar limit. Credit sales incur a fee, which is a small percentage of the total sale for merchants. In a significant transaction, such as the purchase of a new automobile, the dealer may spend hundreds, or even thousands, of dollars on card fees alone. To help offset the incurred expenses, some dealers may levy a 2% to 3% premium on credit card sales. Your dealer will choose how much you may charge on your card, although most will set a maximum of $5,000 to $10,000.
The actual issue is whether or not you should purchase a vehicle using a credit card.
Using a credit card to buy a vehicle may be advantageous for a variety of reasons. Without a lienholder, for example, you may receive the title in your name right away and get quick possession. Alternatively, your credit card issuer may have an interesting incentive program that provides you with some tempting perks in exchange for using it.
Regardless of why you want to buy a vehicle using a credit card, there are a few things to think about before you do.
Can you afford to pay the bill?
It may seem obvious, but many consumers charge a vehicle on their credit card without considering how they will handle the purchase.
As an example, as previously said, some automobile purchasers use a credit card to purchase a vehicle in order to receive points. Many creditors provide cardholders with incentive-laden arrangements, such as 1% cashback on all transactions.
Using a new card with a 0% introductory APR is one exception to this strategy. However, although this saves you money on interest costs for the first few months, you must be cautious. Let’s say you don’t pay off the debt before the promotional time ends. In that case, you’ll have to pay interest, which could put you in a tight financial situation while also removing any benefits from using your credit card to make the purchase.
Ascertain that your credit limit is high.
You’ll need a sufficient credit limit to buy a vehicle altogether or even make a significant down payment using your credit card. If your credit limit is currently low, you may need to contact your bank or credit institution to request an increase. If your account is in good standing, you may seek a credit limit increase.
When determining whether or not to pay for your automobile using a credit card, keep these things in mind. It could or might not be worthwhile, depending on your approach.
Before making a purchase, contact your card issuer.
You should call your creditor first, whether you’re buying a vehicle altogether or merely making a large down payment with your credit card. Call them and tell them you’re going to purchase a vehicle and use your credit card to pay for it. To prevent any hiccups, it’s a good idea to call them ahead of time. A charge of such magnitude may otherwise raise a fraud warning, causing the transaction to be delayed.
Factors to consider before you can buy a car with a credit card
To prevent expensive blunders, think about these items before you swipe or touch your credit card for your next automobile.
Interest Payments
When buying a vehicle using a credit card, which often has a higher interest rate than a bank loan, it’s crucial to factor in the cost of interest payments and fees.
A standard bank loan might save you a lot of money in interest if you want to pay off the automobile gradually.
Credit Limit
Your credit limit is the amount of money you have available for purchases.
Your card’s credit limit is normally determined by your income and credit rating, as well as any other loans or credit card balances you may have. If you want to use your credit card to pay for a vehicle in full, be sure your credit limit is sufficient. It can be more practical to make a down payment or pay just a fraction of the amount on the card.
Dealing with the Policies of Automobile Dealerships
Every vehicle dealership is unique. Some establishments will take credit cards, while others will not. Those who do will charge you a higher fee — up to 3% — to cover the cost of card processing. When you’re calculating the purchase price, keep this in mind.
Negotiating the price upfront is one technique. To determine the car’s value, use Edmunds.com or KelleyBlueBook.com. It’ll come in handy when it’s time to bargain.
You may decide on payment methods once the dealership has agreed to it. Dealerships want to sell you a vehicle and a loan. If you start by stating your preferred method of payment, they may be less willing to negotiate the vehicle’s price.
What Will It Set You Back?
Some people choose to use their credit cards solely for a down payment and get a vehicle loan to cover the remainder, while others prefer to use their credit cards for the full transaction. Determine your preferences and seek a dealer who is prepared to accommodate them.
If you don’t expect to pay off your credit card balance right away, you’ll need to figure out how much interest you’ll pay on top of the car’s total price. Try the Edmunds auto loan calculator online to obtain a better idea of your monthly payment estimate on a used vehicle loan or a new car loan. Calculate how much it will cost you if you pay with a credit card instead of a loan. Compare the two options—vehicle loan vs. credit card—to find which is the most cost-effective.
If you just have a high-interest credit card and can’t pay off the bill immediately, an auto loan is the best option. Keep in mind that consumers with stronger credit scores often get cheaper rates.
Can Your Credit Drop if You Buy a Car with a Credit Card?
Because buying a vehicle is such a large transaction, using a credit card may have an impact on your credit score.
When calculating credit scores, credit agencies consider a variety of criteria, including the total amount of debt you owe and the amount of credit you have available.
Credit usage is a percentage that accounts for 30% of your entire credit score.
Significant debt, such as the cost of a vehicle, hurts your ratio. In general, the less debt you have, the higher your credit score. That’s why it’s crucial to have enough money on hand to pay your credit card as soon as the charge is made.
Final Thoughts
It is possible to pay for a vehicle in full using a credit card, but you will likely find that more dealers are prepared to take a credit card for a down payment or a payment that covers a percentage of the car’s cost.
Buying a vehicle with a credit card might be a wonderful way to rack up points if you can afford to pay off the bill quickly, but just because you can doesn’t mean you should.