Can You Buy a Car With a Credit Card?

The first question most people ask when pondering whether to buy a car with a credit card is – is it possible to do in the first place? The answer is yes and no, depending on where you might make the purchase. Not every dealership accepts credit cards as a method of purchase. 

If a dealership does accept credit cards as a form of payment, you need to do a cost/benefit analysis to decide whether this is a smart decision for your finances. We’ll help guide you through this decision by breaking down the good and the bad of making a vehicle purchase using a credit card.

Do auto dealerships accept payment by credit card?

Credit cards are universally accepted, and we often just assume wherever we go our plastic is readily welcomed. That’s not exactly the case for car dealerships. Some dealerships will allow the entire purchase of the car if your limit is high enough, while others might allow you to pay only up to a certain limit, say the first $5,000 of your purchase. However, dealerships generally don’t want to do business this way. 

But why? Money is money, right? 

It’s because dealerships are often paying over 3% in transaction fees to the credit card company. But besides whether or not a dealership will accept your card or not, there's a bigger question: Is it even a good idea?

Is buying a car with a credit card a good idea? 

When dealerships do accept this type of purchase, buying a car with a credit card is usually not advisable, but it depends on your circumstances. This table highlights some of these circumstances which we elaborate on below:

It’s a good idea to buy a car with a credit card if:	It’s a bad idea to buy a car with a credit card if:
You have a very high credit limit.  Your credit card offers a rewards program and/or encourages large purchases (like cash back). Your credit card has a low interest or 0% APR promotional period. You have the ability to pay your full balance quickly.	You don’t want your cashflow limited by a big credit card purchase. Your credit card charges high interest.  You cannot make large repayments in a short amount of time. You want to build your credit score (better to choose financing).

Can I buy a car and get credit card rewards?

This is probably the most compelling reason to use a credit card to buy a car – travel points, cash back incentives and other various credit card rewards programs. If you can find an agreeable dealership that takes credit cards as a purchase method, then this could be a way to capitalize on those rewards offers. 

For example, you have a travel rewards card that gives you miles for every dollar purchased. A large purchase in the range of $10,000 is going to net you a quick 10,000 miles you can use to book a flight. Another scenario might be a cash back incentive program where you get a percentage of your purchase back in cash. 

However, before you get too excited about getting 4% back on a $10,000 purchase, you need to check the fine print. Many of the cash back programs only offer 4% on small purchases like groceries and subscription services, while gas and public transit net you 2%. Everything else? Only 1%. 

Other credit cards offer “welcome bonuses,” which will be cash back on any purchases within the first 3-6 months of having the card. It can be as high as 5-10%! But again, make sure to read the fine print, as that bonus is usually capped somewhere around $250. 

Car loan vs. credit card

Just because you are facing immediate transportation needs, it doesn’t mean you need to hit the nuclear option on your credit card. Deciding between a car loan or credit card means weighing up the pros and cons of revolving credit versus installment credit. 

If your credit score is important to you (and it should be), installment credit is the best path forward.

Auto finance, or a car loan, is a form of instalment credit. That means you borrow a lump sum to pay for your car and commit to a monthly payment schedule (a fixed term of between 3-7 years usually) until the loan is paid off in full. With a positive payment history, your monthly installments will boost your credit rating. 

By contrast, credit cards are a type of revolving credit, which means the debt is ongoing and not fixed. You have a credit limit and can borrow up to that maximum limit. 

If you don’t have a high credit limit, be prepared to pay your balance quickly. If you max out your credit card, things can start to get messy. Suddenly your pre-approved billings get bounced back and you default on bill payments. Missed payments and high credit utilization will hurt your credit score and make it harder to achieve future financial goals. 

Instead of a fixed monthly repayment schedule, you can pay off the entire balance of your credit card every month or just part of it. You can even make minimum payments, but that’s a good way to get trapped in a long cycle of debt.

For example, the minimum payment on your card is two to three percent of your total balance. So if you’re carrying a $15,000 vehicle purchase, your minimum monthly payment is going to be $300-$450. Plus, you’ll accumulate interest on whatever balance you carry into the next month. If you only make the minimum payment every month, you’ll be shelling out thousands in interest charges over the next few years. 

Pro Tip: Pay at least double the minimum monthly payment to save on credit card interest. 

How to buy a car with a credit card

If the dealership you’re working with will accept a credit card, it’s ideal to make the transaction with a low-interest credit card, so you can pay off the whole purchase right away and avoid high interest from kicking in.

Some credit card companies offer promotional periods with 0% APR. This could be a sign-up bonus or if you transfer your balance from other credit cards and lines of credit. So, you could potentially purchase a car with your 0% APR card and pay it off during that window.

But to maximize the advantages of a credit card purchase, several factors need to be working in your favour:

• You must have good credit to qualify for low interest or the 0% APR promo.
• You must have a high credit limit to prevent limiting your cashflow or maxing out your credit utilization.
• You must be able to pay off your balance quickly to avoid cumulative interest charges.
• Your credit card issuer must permit rewards on large purchases.

Can you use your credit card for a down payment?

Sometimes the need for a new vehicle comes unexpectedly. You suffer an engine breakdown or a traffic accident that puts your ride out of commission. In these situations, you will be at the dealership looking for a car before you’ve had time to get your down payment together. That’s when a credit card might help you to cover the down payment. If the dealership accepts this, you can make your down payment with a credit card and finance the remainder of the car’s purchase price.

But if you think paying back a full down payment in a short amount of time will be problematic (and that includes most people) then you should consider funding the entire vehicle purchase through financing. 

Canada Drives can help with that…