There are many different options when it comes to purchasing a car. Whether you want to get a loan or pay cash outright, most dealerships will work with you if it means they will get a sale. This means that buying a new or used car from a dealer is accessible to people from all kinds of economic backgrounds.
When thinking about purchasing a car, you might wonder if it is possible to pay for it with a credit card. If you need a reliable car for work or school and have no other way to pay for it, a credit card might seem like a viable option. While it is possible to pay for a car using your credit card, it is incredibly important that you understand all the different factors that come into play when doing this.
Will a Dealership Accept a Credit Card?
Before purchasing a car with a credit card, you first have to find out if a dealership will even let you do it. Some dealers will allow it, but you should know that you may be subject to extra fees. Most merchants have to pay a processing fee when they run a credit card in the form of a percentage. This fee may be nominal for smaller purchases, meaning you won’t be charged for it. With a car, though, the fee will be much larger and the dealer may hold you responsible, which will increase the price of your vehicle.
A dealer may also only allow you to pay for a portion of the vehicle with a credit card. If you only want to pay for the down payment, they will most likely allow it. If you want to pay for the entirety of a $30,000 car with your credit card, though, they may not want to be responsible for the fees, which are usually in the 1 to 3 percent range. For example, if you are looking to pay the full price for that car with a credit card, the fees could add up to $900 or more.
What to Consider When Buying a Car With a Credit Card
Before you decide to purchase a car with a credit card, you must understand what you are signing up for. As with any large financial decision, there are pros and cons to buying a vehicle with your credit card. By knowing what factors will come into play, you can make the best possible decision.
Interest
One of the biggest things to consider when buying a car with a credit card is interest. Credit cards have the highest interest rates out of any of the other financing options for a car purchase. The average APR for a credit card is around 16 percent. When you compare this to a rate of around 5 percent for an auto loan, you can see how much more you will be paying in the long run if you buy a car using your credit card.
One of the ways you can avoid paying this high-interest rate is to get a new credit card that has a no-interest introductory rate. If you can pay off the car before that introductory rate runs out, you can avoid paying any interest at all. If you cannot pay off the bill, you will be responsible for paying the high interest on top of the price of the car.
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Credit Limit
Before you decide to buy a car with your credit card, make sure you have a high enough credit limit. Even if you are only paying the down payment, it could still potentially max out your card. If this happens, you will not be able to use it for emergencies or anything else until you have paid off some of the cost of the car. In some cases, you can contact your card issuer and ask for a higher limit. If you have a good history with that issuer, they may allow you to make a larger purchase.
Credit Usage
The biggest downside of purchasing a car with a credit card is that it will severely affect your credit usage. Financial institutions like FICO look at your credit utilization when issuing your credit score. Purchasing a car will certainly increase the percentage of the available credit you are using and your credit score could go down. Because of this, it is a good idea to make sure your credit limit is significantly higher than what you are paying for the car.
Contact the Card Issuer
Before you purchase a car with your credit card, make sure that you contact the card issuer beforehand. Often, credit card companies have fraud departments that will flag unusual charges. If you do not regularly make large purchases with your credit card, it may get declined. By contacting them before you buy the car and letting them know what you will do, you can be sure that the transaction will go through.
Consider an Auto Loan
Purchasing a car with an auto loan is almost always a better option than doing it with your credit card. Not only will you be paying a lower interest rate, but you can also negotiate the terms and get a loan that will work for you and your financial situation, even if you don’t have the best credit. An auto loan may not come with some of the rewards and incentives that a credit card has, but you will end up paying much less in the long run while also helping your credit score instead of hurting it.
Protect Your Purchase With an Extended Warranty
Once you have purchased your new vehicle, it is important to protect it no matter how you paid for it. An extended warranty can help cover your vehicle and make sure it stays safe and runs smoothly for many years. Getting the right warranty can help you feel confident that you won’t be surprised by any large repair fees, especially if you are purchasing a used car. Explore our extended warranty provider reviews and buying guide to find out which extended warranty will work best for you and your vehicle.
