Nowadays, most Americans have one or more credit cards, and many companies offer rewards, such as points or cash back, to customers who make large purchases with their cards. Paying for a car with a credit card is one way to earn rewards, but not all car dealers accept credit cards. You can pay with credit at some dealerships, but there might be a limit on how much you can spend. Keep reading to learn the ins and outs of buying a car with a credit card.
Do Car Dealers Accept Credit Cards?
Not all car dealers accept credit, but some do. It’s common for car dealers to let you pay for the down payment using a credit card. Some dealers won’t accept credit cards because of the credit card processing fee, which is usually 1-3.5% of the entire purchase. To avoid getting hit with heavy processing fees, car dealers usually prefer other forms of payment—cash, money orders, personal checks, cashier’s checks, ACH transfers, etc.—over credit card payments.
Is It a Good Idea to Pay for a Car with a Credit Card?
There are pros and cons to buying a car with a credit card. While purchasing a car using your credit card can help you earn points and rewards, you might be charged expensive fees and interest that could outweigh the benefits of using your card.
Convenience Fees
Some dealers charge convenience fees to customers who pay with credit to offset the cost of the transaction fee. A convenience fee typically costs between 2-4% of the total transaction, which might negate any savings or rewards you earn from paying with credit.
Credit Limit and Credit Utilization
Your credit card limit is the maximum amount you’re allowed to charge on your card. Depending on the price of the car, you might exceed your credit card limit if you put the entire purchase on your card. Even if the purchase is within your limit, you don’t want to approach the limit as this can raise your credit utilization ratio, or the amount of credit you’re using compared to your total available credit. A high credit utilization score can negatively impact your credit score over time.
High-Interest Rates
Interest rates on car loans are usually cheaper than credit card interest, especially for car loan borrowers with good credit. If you plan on paying for the car over time, using an auto loan instead of credit will reduce the amount of interest you pay overall. However, it’s possible to avoid interest charges if you purchase a car and pay it off within your credit card’s 0% APR window.
Potential Rewards
If you’re purchasing a car with a credit card, you want the potential rewards to offset the fees mentioned above. Some car manufacturers have created credit cards that earn points and rewards you can use to buy a discounted car.
If you’re considering purchasing a car, make sure to secure quality insurance before you hit the road. The General believes that everyone deserves quality coverage and five-star customer service, including high-risk drivers and drivers with less-than-perfect credit scores. You can get a quote in under two minutes or less, or read more articles about buying a car on our blog.
