Pros and cons of buying a car with a credit card
Written by
Writer, Fox Money
Ben Luthi has spent over a decade covering finance and is an expert on credit cards, student loans, and mortgages. His byline has been featured by U.S. News & World Report and The New York Times.
Updated October 16, 2024, 2:47 AM EDT
Buying a car with a credit card could give you the chance to earn some extra rewards. But if you’re not careful, you may end up paying a lot more in interest on your card compared with an auto loan.
If you’re thinking of using a credit card to buy your next vehicle, here’s what you need to know.
Can you buy a car with a credit card?
It is possible to put the full cost of a car purchase on a credit card. But it primarily depends on the dealership’s policy. Dealers, like any other merchant, must pay merchant fees on credit card payments, which means they’ll end up losing 2% or 3% of what you charge. As a result, it’s common for dealers to put a limit on how much you can pay with your credit card — typically just a few thousand dollars.
So, if you’re purchasing an older car with a low price tag, you may be able to put the full amount on your card. But you may have a harder time with newer and more expensive models.
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Pros and cons of buying a car with a credit card
On the surface, using a credit card to buy a car may sound like a poor decision. But there are some potential advantages that can make it worth it:
- Earn rewards: Many credit cards offer cash back or reward points or miles on every purchase you make, including a vehicle purchase. If you have enough cash on hand to buy the car outright, consider using your credit card to make the purchase then paying off the balance immediately, so you can enjoy the benefits of rewards cards without the cost of interest charges. Find the best rewards cards using Credible's free comparison tool.
- Get a 0% APR deal: Some credit cards offer a 0% intro APR promotion that gives you anywhere between six months and almost two years from the day you open your account to pay off purchases interest-free. If you have the means to pay off the full balance before the promotional period ends, you could avoid the additional cost of an auto loan. If you're interested, you can view zero percent credit cards on Credible now.
- You own the car: When you finance a vehicle with an auto lender, it technically owns the car until you pay off the balance. But if you use a credit card, you’ll get the title from the start. What’s more, you can choose how much insurance coverage you want on the car — in contrast, if you have a lender, it will likely have some minimum requirements.
That said, buying a car with a credit card may not be the best choice for many people. Here are some potential reasons to avoid it:
- Credit card APRs are higher: In most cases, the interest rate on a credit card will be much higher than that of an auto loan. If you expect to need several years to pay off the debt, you’ll save a lot of money by choosing an auto loan over a credit card.
- Repayment terms work against you: With an auto loan, your repayment schedule is set from the start, so you’ll know exactly when your balance will be zero. With a credit card, however, there is no set repayment period. Instead, you’ll just get a minimum monthly payment. If you only pay that amount, you may end up taking years longer to become debt-free.
- It could hurt your credit: Putting a large purchase on a credit card could spike your credit utilization rate—the percentage of your available credit that you’re using at a given time. The higher your utilization rate, the more it could potentially hurt your credit score. So, if you put a large purchase like a vehicle on a card and take a while to pay it off, your credit score could decrease and stay down for much of that time.
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Are car down payments via credit card accepted?
Yes, if the dealer allows you to use a credit card, it doesn’t matter whether you’re buying the car outright or simply putting money down. In fact, because of dealer policies, it’s more likely that you’ll only be able to put money down than you are to buy the whole vehicle.
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When should I use a credit card to buy a car?
If you have a rewards credit card and you’re in a financial position to immediately pay off your car, it could be a no-brainer to take advantage of the rewards. It may be especially worth it with a new credit card if the purchase can help you meet the minimum spending requirement for bonus points.
It may also be worth it if your credit is good enough to qualify for a 0% APR credit card, and you have the means to pay off the balance in full before the promotional period ends.
If you don’t have the budget to pay off the purchase quickly, though, you’re better off with an auto loan.
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Should I consider using a personal loan instead?
On average, a two-year personal loan has a 9.34% interest rate, according to the Federal Reserve. In contrast, the average credit card charges 14.58%. But the Fed has also found that the average interest rate on a 60-month auto loan is 4.98%, which is much lower than both.
Also, personal loans tend to have shorter repayment terms than auto loans, which means a higher monthly payment. As a result, an auto loan is generally your best option for long-term financing.