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.

Pros and cons of buying a car with a credit card

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

Potential disadvantages 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

How buying a car with a credit card affects your credit

Your credit utilization will spike

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 credit score.

If you miss a payment, you could damage your score

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.

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.

Alternatives to buying a car with a credit card

Here are a few better alternatives:

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

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. Signing up is free, and we don't check your credit. Create your account with us today!