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Can you buy a car with a credit card?

Yahoo Personal Finance· Getty Images
Joseph Hostetler
·Contributing writer
7 min read

Simply put, buying a car with a credit card is a bad idea for nearly everybody. There are a few strategies that may make it a worthwhile endeavor — but unless you’ve got the money to pay off your card immediately, it’s a financial booby trap.

Here’s what you need to know about buying a car with a credit card.

There are two reasons you might consider purchasing a car with a credit card:

  1. You’re a savvy collector of credit card rewards and you’d like to funnel a large expense like an auto purchase through a credit card or two.

  2. You want a car but don’t want (or can’t qualify for) an auto loan.

Car dealerships are perfectly capable of accepting credit card payments — whether they actually will is a total grab bag. Here’s why: Whenever you use your credit card, the merchant accepting the payment will pay a processing fee (often between 1.5% and 3.5%) to your credit card issuer. Your issuer will then pay the card’s payment network (Visa, Mastercard, Discover, etc.) to fulfill the transaction.

To give customers the ability to use a credit card is well worth that cost for most vendors. But car dealerships are an exception. After all, eating up to 3.5% of a $30,000 car is a hefty price just to allow a customer to pay with a credit card. Some locations may invite you to use a credit card for your down payment, but not the entire bill. If it’s of paramount importance that you use a card for the whole transaction, you may need to visit multiple car dealerships before you find one that’ll even entertain the idea — or offer to repay them for their losses.

You can earn cash back, airline miles, hotel points, or flexible bank rewards by channeling your spending through a credit card. For example, if you were to make a $30,000 car purchase with the Citi® Double Cash Card, you’d earn $600.

However, the best credit card strategy to leverage a large purchase like this is by earning a welcome bonus — or even multiple. For example:

By opening and using these three credit cards to buy your car, you’d earn more than 300,000 rewards points and miles from just $14,000 in spending. Depending on how you use those rewards, it’s entirely possible to net well over $5,000 in value. This is an easy win for those interested in travel.

Just note that if you want to open multiple credit cards in a short span of time, it’s wise to apply with different credit card issuers. Banks often have rules about opening multiple products in a short span of time. For example, Chase tends to only approve a maximum of two credit card applications per rolling 30-day period. But you could potentially open one card from Chase, American Express, Citi, and Capital One all in the same day.

There’s more to credit card spending than just your return rate. Many rewards credit cards offer motivation for meeting specific spending thresholds each year.

As an example, the World of Hyatt Credit Card offers a bonus free night at a Category 1–4 Hyatt hotel each year you spend at least $15,000. You could squeeze hundreds of dollars from this free night, depending on the property you choose to use it for.

Remember those processing fees we talked about earlier? That expense may come back to haunt you.

If your request to pay with a credit card isn’t flat-out denied, the car dealer will likely raise the total amount you owe by tacking on a “convenience fee” to cover a portion of the processing fees it will sustain. You’re charged for the “convenience” of using a credit card instead of a form of payment that doesn’t require a processing fee. This is sure to negate your rewards earnings.

Credit utilization, also called “amounts owed,” is the ratio of available credit that you’re currently using. For example, if you have a credit line of $20,000 and a credit card balance of $5,000, your credit utilization is 25%.

Credit utilization accounts for 30% of your overall credit score. If your utilization is too high (above 30%, according to experts), your credit score may suffer. Unless you’ve got a tremendous amount of credit (or the vehicle you’re purchasing is dirt cheap), paying for a car with your credit card can increase your credit utilization to detrimental levels. If you’re able to quickly pay down your balance, this shouldn’t be a deal-breaker. Your credit score will bounce back quickly after your credit limit is freed up.

Most credit card issuers report to credit bureaus once per month. Ideally, you’ll pay off your transaction before it even appears on your credit report. The rapidity with which your balance is reported will depend on the day of the month your credit card issuer reports.

Credit card interest rates are nightmarishly high, especially when compared to the average interest rates you’ll find with auto loans — or even most personal loans. Unless you’re able to pay off the transaction for your new car within a month or two, (or longer if you’re using a credit card with a generous 0% intro APR offer), it’s not worth it. In other words, using a credit card to finance a car with the intent on making monthly payments is almost always a horrible idea. Interest charges will erase any upside to using a credit card.

Assuming you’re going to make an enormous purchase on a single credit card, there’s a chance you may be declined — even if you’ve got the credit line to swing it. Your credit card issuer may want to ensure that the hand swiping your card is in fact attached to your body.

Before you make your purchase, it could be worth giving the issuer a heads-up. Some cards even offer a feature within your online account that allows you to preemptively test your spending power. Simply enter the dollar amount of your upcoming transaction, and it’ll tell you whether the purchase will be approved.

Using a credit card to purchase a car outright probably isn’t the best option for you. But what about making a car payment with a credit card?

It is possible to pay your monthly car loan with a credit card. Lenders that don’t accept cards can be compensated through third-party payment platforms such as Plastiq, which charges your credit card and then mails a paper check to whomever you request.

Either way, making a car payment with a credit card is usually a bad idea because of the convenience fees incurred by these payment platforms (often around 3%). Again, unless you’re struggling to meet the minimum spending requirement for a credit card, it’s almost certainly not worth paying with a credit card.

This article was edited by Rebecca McCracken

Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.