Most car dealers don’t take credit cards. And if you find one that does, you might be hit with hefty fees to cover the dealer’s costs.
It’s definitely possible to find a dealership that will allow you to buy a car with a credit card. In fact, there are certain advantages to doing so, such as getting the title in your name before it’s fully paid off.
However, buying a car with a credit card is still a risky choice. It’s more of a question of if you should buy a car with credit. You’ll have to pay off some fees, your APR will likely be higher, and you may get a drop on your credit score.
While it’s certainly possible to swipe your card and drive off to the sunset, the reality is that the downsides of buying a car on a card might not be worth all of those Airmiles.
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Buying a car with credit means credit card processing fees
If you find a car dealer who accepts credit cards, odds are they will limit the amount of the down payment or the car’s purchase price you can put on the card. Why? It's simple—accepting credit card payments costs dealers money.
Car dealers pay a processing fee when accepting payment via credit card, and this fee ranges between 1%-3% of the transaction.
For a $25,000 car, a dealer will pay a $500 fee to a credit card company for processing the payment. So, the more credit card payments a dealer accepts, the more transaction fees they have to pay.
In an industry known for slim margins, it isn’t surprising that most dealers don’t accept credit card payments.
Key takeaway Accepting credit card payments costs dealers money, so they make buyer pay a fee to make up the difference.
Prepare for convenience fees
Say you’ve found a dealer willing to accept credit card payments. Remember, they still have to pay that pesky processing fee. So, how do they offset this cost? You have to pay it.
In order to recoup money lost to a credit card transaction fee, a car dealer will charge the customer a "convenience fee," to make this money back.
Car dealers, like other merchants who don’t usually accept credit card payments, are allowed to charge a 2%-4% convenience fee to cover their costs.
Cashback, miles, and other rewards programs that come with big credit card purchases are enticing. However, paying a dealer’s required convenience fees will most likely offset any potential rewards typically gained from high credit card spending.
Key takeaway A convenience fee will likely offset the value of credit card rewards.
Don’t forget about interest payments
Credit card interest rates are typically around 20%. Putting the car on the card might mean—in theory—that you can stretch those monthly car payments out. But remember—you’ll be on the hook for that high-interest rate the whole time.
Even buying a car on a new credit card featuring an extended 0% purchase APR period comes with pitfalls.
True, you’ll be paying no interest (including on the car) for the 12-15 months that your APR honeymoon lasts. But once it’s up, the interest rates return. If you haven’t paid off your purchases in full, you’ll be servicing the high-interest rate on your balance for the duration of your lease.
Key takeaways Most credit cards have an interest rate of 20% or more—while average car loan interest rate hovers around 5%.
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Pros and cons of buying a car with a credit card
Pros
There are some advantages of buying a car with a credit card.
When you use a credit card to fully or partially purchase a car, your name goes on the title (not a lender’s).
Also, you may be able to earn credit card rewards, points, or miles by buying a car with a credit card. Remember though—dealer convenience fees may offset the value of those rewards.
Cons
Buying a car with a credit card can negatively affect your credit score.
How so? Credit utilization is the term used to describe the percentage of your credit limit in use. This accounts for roughly 30% of your credit score, and typically you want to keep your credit utilization at the same level or below so your credit doesn’t drop.
So, keep in mind—buying a used car on your credit card can max that card out. If you can’t pay your monthly balance off on time, your credit score will take a beating.
Also, high credit card interest rates make credit card vehicle shopping prohibitive for most. Try securing an auto loan or personal loan instead. Interest rates for car loans typically range from 4.99%-5.49%—much easier to handle for most car buyers.
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FAQs
Do car dealerships take credit cards?
Some car dealerships will take credit cards, but not all of them. Because of the processing fees that come along with buying a car with credit, some dealerships just don’t allow you to buy a car with credit.
Other dealerships will still let you purchase a car with a credit card, but just remember, you’re going to have to pay for the extra fees.
So, should I use my credit card to buy a car or not?
For most people, using a credit card to buy a car is not a good option. High credit card interest rates plus hefty dealer convenience fees make buying a car with a credit card a bad idea for most people.
What if I have a new credit card with an extended 0% interest period?
For some people this may work—just be sure you’ll be able to pay off the card’s balance in full before the 0% period ends. After that, interest rates will kick in!
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