Thanks to their convenience and rewards-earning potential, credit cards are a popular way to pay for everything from groceries to streaming services to travel. But can you use your credit card to buy a car or make a payment toward your auto loan?
The short answer is yes, you may be able to pay for a car with a credit card. But whether you should is a different story. From transaction fees and high interest rates to credit limit concerns, there are various pitfalls to weigh before you try to use a credit card to pay for a car.
In this article, we’ll explore the possibility of making car payments with a credit card, including the likelihood of lenders and dealers accepting this payment method and the pros and cons of doing so. We’ll also discuss some alternative financing strategies that may be more prudent.
Can I Make a Car Payment With a Credit Card?
The chances are slim that your lender will allow you to make a car payment with a credit card. For one, lenders don’t like to pay the transaction fees of 1.5% to 3.5% that come with credit cards. Second, lenders know that if they accept credit card payments, their borrowers would just be trading one form of debt for another.
This second point is important because auto loans have lower interest rates on average than credit cards. And since they’re installment loans, the total interest paid over the life of the loan is fixed. With credit cards, however, interest can quickly grow and compound when cardholders carry a balance. So by allowing credit card payments, lenders would be increasing their risk of borrowers becoming overwhelmed by debt and potentially defaulting on their loans.
Most of the major car manufacturers’ finance arms prohibit credit card payments. One exception is GM Financial which states that it allows borrowers to pay with a credit card through Western Union. Be aware that Western Union charges a fee for its services and other fees may apply from your card issuer including a cash advance fee.
Can I Use a Third-Party Service To Make a Credit Card Car Payment?
Even if you can’t make a car payment with a credit card directly, you may still be able to do so by using a payment service like Plastiq. Plastiq takes credit card payments for a variety of bills that don’t normally accept credit cards (such as auto loans, rent, mortgages, and utilities) and then forwards the money to your payee in the form of a check or ACH payment.
Plastiq advertises its services as a means for individuals to earn credit card rewards on their everyday bills. But it’s important to note that it charges a transaction fee of 2.9% on credit card payments. That’s a higher percentage than most rewards cards pay for non-bonus categories.
In most cases, you won’t come out ahead by using Plastiq to make a credit card payment, even after earning rewards. One exception may be if you used Plastiq for a short period of time to help you reach the minimum spending requirement for a credit card welcome bonus.
Can I Pay Off My Car Loan With a Credit Card?
It’s not probable that your lender will allow you to pay off your loan with a credit card either. A transaction fee would still apply so accepting final payment via credit card would eat into the lender’s profit.
Still, you may have a slightly better chance of convincing your lender to accept a credit card when you’re paying off your loan since future loan delinquency wouldn’t be a concern. If you’re curious, you can call your lender to see if its payment policies are more flexible for loan payoffs.
If your lender does allow you to pay off your loan with a credit card, it may look to cover its transaction fee by charging you a convenience fee. This fee can vary, but often falls between 2% to 4%.
Once again, you can use a service like Plastiq to pay off your auto loan for a fee of 2.9% if direct payment isn’t possible.
Do Car Dealers Take Credit Cards?
Depending on the price of the car you’re looking to buy, it’s unlikely that your car dealer will allow you to pay the full amount with a credit card. However, some dealers may allow you to use a credit card to make a down payment up to a certain limit.
Some online used car dealers such as Vroom and Cars24 do accept credit card payments while others like Carvana and CarMax do not. Tesla only allows credit cards to be used toward paying the initial order fee. Credit card acceptance at local dealerships will vary by the dealer.
A few car manufacturers offer their own co-branded credit cards including GM, BMW, and Lexus. Rewards earned with these cards can typically be redeemed toward the purchase or lease of a vehicle. But there’s no guarantee that your local dealer will accept it as a form of payment toward the remaining balance.
Pros of Buying a Car With a Credit Card
0% APR Credit Card Offers May Be Accessible
Some of the best 0% APR credit cards today offer promotional periods of 15 to 21 months. If you’re approved for one of these cards, it could provide over a year of interest-free financing.
Using a 0% APR credit card could be ideal if you know that you’ll be able to pay off your balance in full before the promotional period ends. In this way, you can spread out your purchase over time without paying any interest.
For example, let’s say that you’re going to put a $5,000 down payment on a car. Before you start shopping, you apply for and receive the Wells Fargo Active Cash® Card which offers a . You also find a dealer that’s willing to accept credit card payments up to a $5,000 limit.
Once you have these ducks in a row, you could use the card to make your $5,000 down payment. Next, you divide $5,000 by 15 to see that you’d need to make a payment of approximately $333.33 each month over the next 15 months to pay off your balance before the end of the interest-free period.
For simplicity’s sake, you set up an autopay recurring payment of $334 per month. If you were able to stick with this plan, your balance would be paid in full in 15 months and you would have avoided paying a cent of interest.
You Could Earn Significant Rewards
If you time things right, your car purchase might be able to help you earn a welcome bonus in addition to the regular purchase rewards. Going after these rewards could be worth it if you know you have the money sitting inside your bank account to immediately pay off your balance in full.
For example, the Chase Sapphire Preferred® Card earns and offers a welcome bonus of . This card also has a modest annual fee of $95. By getting the Chase Sapphire Preferred and using it to pay $5,000 toward a car purchase, you’d earn 5,000 Chase Ultimate Rewards® points, plus you’d earn the welcome bonus.
Those points could be worth over $800 if redeemed towards travel on the Chase Ultimate Rewards portal. Even after accounting for a 3% convenience fee and the $95 annual fee, you’d still come out ahead by over $565.
This option could be worth considering, especially if there’s a certain card that you were already wanting to own. But it only makes sense if you’re certain that you can pay off your entire balance. With the high APRs on credit cards, interest charges can quickly wipe out any earned rewards if you carry a balance.
Cons of Buying a Car With a Credit Card
You May Encounter Credit Limit Problems
Credit limits specify the maximum amount that you can spend on your credit card. Your credit limit may not cross your mind when you’re making everyday purchases. But you’ll want to be sure to look it up before you try to make a large purchase like a car.
If your card’s limit is lower than the purchase amount, you’ll need to use a different form of payment for the difference. In some cases, you may be able to use multiple credit cards to cover the total cost. However, this could also spike your credit utilization ratio to a high level.
Your credit utilization ratio is the amount of credit that you’re using divided by the total amount of revolving credit that’s available to you. Credit scoring companies like FICO® and VantageScore® consider your credit utilization rate when calculating your credit scores. The lower the rate the better for credit scoring purposes. The Consumer Financial Protection Bureau (CFPB) recommends that consumers keep their credit utilization below 30%.
If buying a car with a credit card would raise your credit utilization rate above 30%, that could have a negative effect on your credit score. Keep in mind that the lower your total credit limit, the larger effect that every charged dollar will have on your credit utilization ratio.
Standard Interest Rates on Credit Cards Are High
It’s true that 0% APR credit card offers can be useful, but what if you don’t qualify for one? Or what if you’re unable to pay off your balance before the introductory period ends?
In either of these cases, your credit card’s standard APR would apply and that’s bad news because credit cards are one of the highest-interest forms of debt. According to the Federal Reserve, the average credit card interest rate today is just over 19%. And unlike installment loans, credit card interest compounds—typically on a daily basis.
For these reasons, interest on credit cards can accrue quickly. According to the Forbes Advisor credit card payoffcalculator, if you paid $150 per month toward a credit card with a $5,000 balance and a 17.5% interest rate, it would take you 47 months to pay off your balance. Over that time, you’d pay more than $2,000 in interest charges.
Alternatives To Using a Credit Card To Buy a Car
Using a credit card to buy a car could make financial sense if you’re certain you can avoid interest charges by:
- Taking advantage of a 0% APR intro offer, OR
- By paying your balance in full by your billing due date
If neither of those situations apply to you, we recommend exploring these alternative financing strategies instead.
Shop Around for an Auto Loan
If you’re able to qualify for an auto loan, you’re likely to secure a lower interest rate (with no compounding). When possible, aim to obtain loan preapproval from a bank or credit union before you visit the dealership.
Once you’re on site, it may turn out that the dealer’s finance department is able to offer you a better rate. Either way, arriving with preapproval in hand puts you in a strong spot for negotiation. If you’re unable to qualify for an auto loan on your own, you may want to consider applying with a creditworthy co-signer.
We recommend applying with two or more lenders to compare quotes. You can get a jump start on the shopping process, by checking out the Best Auto Loan Rates Right Now.
Save Up To Pay With Cash
With focused budgeting and spending, it might take less time than you think to save up enough money to make a cash-down payment or to buy a less expensive used car outright. We realize that this strategy won’t work for those with immediate transportation needs. But if buying a car is more of a want than a need for you right now, waiting to pay with cash could save you a lot of money in interest charges.
Trade In Another Vehicle
Even if you qualify for an auto loan, it can still be difficult to come up with the cash that’s required for the down payment. Before you reach for your credit card, ask the dealer about your trade-in options. In some cases, the value of your trade-in may be enough to cover the down payment on the car you’re purchasing.
Bottom Line
While there may be benefits to using a credit card to pay for a car, there’s also some serious potential downsides. Car buyers who can pay off their credit card balance quickly may decide that the rewards outweigh the risks. But for many others, a different form of auto financing will be the wiser choice.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
