Can You Buy a Car With a Credit Card?

The process of buying a car can be stressful. Once you’ve figured out which vehicle you want, figuring out financing can be a whole other headache. If you’re wishing you could get the process over and done with, you might wonder, “Can you buy a car with a credit card?” If so, should you? 

Can you buy a car with a credit card?

Sometimes, you can purchase a car and pay with a credit card. Most dealers will allow you to use a credit card to make a partial payment (like a down payment) toward the car. 

Some may let you pay for the whole car with a credit card, but even those that do will usually set a limit. For example, a dealer might let you use a credit card to buy an $8,000 used car, but they likely wouldn’t let you use a card to buy a $30,000 vehicle.

You might wonder why a car dealership would limit your ability to pay for a vehicle with a credit card. After all, the dealer is getting paid regardless. The reason is that dealerships have to pay a fee to process credit card transactions, and that fee is usually around 2% to 4% of the purchase amount.

How buying a car with a credit card works

The process of buying a car with a credit card varies a bit depending on whether you’re paying for the whole vehicle with a credit card or just making a partial payment. Before doing either, you should take the following steps:

• See if the dealership accepts credit card transactions
• Ask if you’ll be responsible for transaction fees
• Verify that you have enough available credit to make the purchase

It’s also a good idea to double-check that you’ll have enough cash to pay for the entire purchase price before your statement date. Otherwise, you might owe hundreds (or even thousands) in interest.

Pros and cons of buying a car with a credit card

If your situation allows you to buy a car with a credit card, you should carefully weigh the pros and cons first. These are a few potential advantages:

• You may earn cash back or rewards points
• You might be able to take advantage of 0% APR introductory offers
• It may make the transaction especially efficient

These advantages might make buying a car with a credit card seem tempting. However, you should consider them alongside potential disadvantages, which include:

• Using a large portion of available credit can damage your score
• Dealers often pass on credit card processing fees (usually 2% to 4%) to you
• If you don’t immediately pay off the balance, you may have to pay a significant amount in interest

Most credit cards have interest rates far higher than those of most car loans. If you don’t pay the balance before interest accrues, you might end up owing much more than you would if you’d financed the car.

How buying a car with a credit card affects your credit

Before you buy a car with a credit card, you should take a moment to think about the possible impact on your credit. There are a few ways that buying a car on credit could impact your credit score.

Your credit utilization will spike

This is probably one of the biggest hazards of buying a car with a credit card. Lenders usually suggest keeping your credit utilization below 30% of your available credit, although keeping it below 10% is even better.

Unless you’re buying a very inexpensive car or you have a very high credit limit, buying a car with a credit card is likely to drive up your total credit utilization. This is a red flag for lenders, and it may lead to a drop in your score. 

Paying off the debt will usually bring your score back to normal. However, if your circumstances change and you can’t pay it off like you intended to, you might suffer long-term credit damage.

If you miss a payment, you could damage your score

You might already know that your payment history is the most important factor when determining your credit score. 

If you decide to buy a car with a credit card, you should at least have minimum payments on autopay in case you forget. If a payment is late enough to be reported to credit bureaus (usually 30 or more days past the due date), it could seriously damage your score.

Coming back from a missed payment takes longer than many people think. Late payments and most other negative marks stay on your credit report for seven years, although their impact lessens over time.

You won’t have a diverse mix of credit types

One of the factors that helps determine your FICO score is your credit mix. It accounts for 10% of your score, and it refers to the mixture of different account types you currently have (and have had in the past).

This might not seem like something consequential. However, lenders usually want to see that you can manage multiple types of credit at once. With all else being equal, a credit profile that includes credit cards and an auto loan will likely be stronger than one with just credit cards.

Alternatives to buying a car with a credit card

While there are limited circumstances where buying a vehicle with a credit card might be a good idea, there are usually better alternatives. Here are a few examples:

• Taking out a traditional auto loan
• Saving up and buying the car in cash
• Leasing a vehicle instead
• Taking advantage of dealer-provided financing

If you have an existing vehicle, consider trading it in. Depending on its value, it may significantly reduce what you’ll have to pay for your new vehicle.

Want to improve your credit?

In many cases, financing a car is a better idea than buying it with a credit card. But if you want to avoid high interest rates, it’s a good idea to build up your credit before you start applying for car loans.

If you want to boost your credit but aren’t sure where to start, Kikoff is here for you. We’re a credit-builder app focused on the needs of people who have poor credit, limited credit, or no credit at all.

Once you sign up and are approved, you’ll gain access to a range of tools to help you build your score while establishing healthy credit habits. Signing up is free, and we don’t check your credit. Create your account with us today!