Why You Can’t Buy a Car with a Credit Card

You’re ready to buy a new car.

And, being the savvy consumer you are, you might wonder whether you can make the purchase using a credit card.

Why?

You might want to take advantage of a zero-percent interest rate offer. Or, you just want to rake in big rewards on a big purchase.

The truth is:

You're going to have a tough time finding a car dealer that will accept a credit card for payment.

Find out exactly why you can't buy a car with a credit card and what lending options you should consider instead.

Why Buy a Car with a Credit Card?

First, you might wonder, why would anyone want to buy a car with a credit card?

Credit cards have ridiculously high interest rates which could cost you thousands of dollars before you’re able to pay the car off, right?

You want to take advantage of a 0% APR offer

One reason that people might want to use their credit card to buy a car is an intro 0% APR offer.

Many credit cards offer promotions for people who are new cardholders.

Often, one of these promotions is a period where you pay 0% interest on all purchases, so long as you make at least the minimum payment each month.

Now:

With most cards, these promotions last for 12 to 20 months, which is plenty of time to make a big dent in the car loan without interest charges.

You want to earn big rewards

Another reason is that many credit cards offer rewards.

When you sign up for a new credit card, you might get the chance to earn a lucrative sign-up bonus.

For example, you might receive an offer where you’ll get a $500 bonus if you spend $3,000 in the first three months that you have your credit card. If you can knock out that spending requirement in one large purchase, such as by buying a car, you can cash in with little effort.

Of course:

Sign up bonuses aren’t the only way to get rewards.

Many cash back credit cards offer between 1% and 5% cash back on purchases, depending on the card and the merchant.

Even if you get just 2%, the average new car costs a whopping $34,000 -- two percent of that is $680, which is nothing to sneeze at.

Why Car Dealers Don’t Accept Credit Cards

Unfortunately, car dealers don’t accept credit cards when you’re buying a new or used car.

There are a few reasons:

Card processing fees

To privilege of accepting credit card payments isn’t free.

The companies that issue credit cards need to earn revenue to keep their payment processing networks running and the interest they earn from customers isn’t the only way that they raise that money.

The fact is:

Every time that you make a purchase with a credit card, the merchant accepting the payment pays a fee.

Usually, the fee is a small flat amount, plus a percentage of the transaction.

Depending on the card issuer, that percentage rate can be 3% or more. When you’re talking about something as expensive as a new car, taking 3% off the top is a big ask for the dealer.

Decreased financing profits

Another reason that dealers are hesitant to accept credit cards is that many have partnered with banks or lenders to offer financing for vehicle purchases.

For every customer that the dealer directs to their financing partner, they get a referral fee.

Some dealers even run their own financing businesses.

Either way, every customer that finances a car with another lender, or by using a card, is another customer that doesn’t pay them financing fees, interest, and other related fees.

Impractical

Finally, many customers would simply be unable to pay for a new car with a credit card.

Cars cost a lot, and not many people have high enough credit limits in the tens of thousands on a single card.

The level of demand for allowing people to pay for a car with a credit card is relatively low.

What Can You Do?

If you want to take advantage of your credit card when purchasing a new car, all is not lost.

Look:

Possibly the best way to take advantage of a credit card when buying a car is to use it to make your down payment.

Many car dealers will allow you to use your card for a down payment, though you may have to include this in your haggling with the salesperson.

Typically, there will be a cap on how much you can charge to a card, in the $2,000 to $3,000 range, but it varies from dealer to dealer.

To take advantage of this, sign up for a new card with a lucrative signup bonus, but a high spending requirement.

If you can knock out $3,000 of spending in one purchase, that makes it much easier to meet a spending requirement, even it’s $5,000 or more.

To really max things out, try to find a card with a signup bonus and a 0% APR promotion. If you can take advantage of both of these perks, you can come out hundreds of dollars ahead.

Get the Best Car Financing Without Using a Credit Card

Since you can’t pay for a car with a credit card, what’s the best way to finance the rest of the purchase?

Understand your credit score

To start with, you need to start in the same place as you do with any type of loan: making sure you have good credit.

Your credit score impacts a huge swath of your financial life, from the credit cards that you can get to the rate you’ll pay on a car loan or mortgage.

The higher your credit score is, the better.

Of these, your payment history and the amount that you owe have the largest impact.

To make sure that you have good credit, try to avoid carrying a balance on your cards and pay down any existing loans that you have.

Also, make sure that you pay your bills before the due date every month. Even one late or missed payment will have a large impact on your score.

Don’t be afraid to check your credit report using AnnualCreditReport.com. If you see any errors, reach out to the credit bureau to get them corrected.

Secure Financing

Once you’re confident in your credit, it’s time to start looking for financing offers.

Research auto loans

The truth is:

The best place to start is your bank.

Most large banks will offer auto loans to their customers, and because of your relationship with your bank, you can usually get a good deal. Many banks offer additional perks for customers with large balances or who sign up for automatic payments.

See what kind of interest rate you can get from your bank. If it seems reasonable, get a preapproval if you can. That will be helpful when you walk into the dealership.

Even if you get a good deal from your bank, don’t be afraid to shop around. You can check multiple banks and lenders in your area to see which has the best deal.

Watch for loan fees

Remember that lower interest rates mean lower monthly payments and lower total costs.

However, some lenders will charge fees on their loans, such as processing fees or origination fees.

Your goal should be to minimize the total cost of your loan, so if you see these fees from some lenders, but not others, do the math to see if the lower interest rates make up the difference.

Loan terms

Another thing to look out for is the loan terms that each lender offers.

Some lenders might only offer loan terms of up to 5 years. Others will let you take up to 7 or more to pay the loan back.

Longer term loans have lower monthly payments but will cost more in the long run.

Dealer financing

Check with the dealer to see if it offers financing. Many dealers have an incentive to get you to sign up for their financing.

Be sure:

See if you can get the dealer to give you a kickback or other perk if you agree to in-house financing.

Even if you can’t get anything from the dealer for agreeing to in-house financing, many of these deals are good on their own, thanks to the financer’s specialization in auto financing.

As with anything, finding the best deal when it comes to financing your car is all about shopping around. Put in the effort and you’ll find a good deal.

Conclusion

While you can’t pay for your car with a credit card, some dealers will let you use a card to make your down payment.

This can be good for meeting sign up bonus requirements or taking advantage of 0% APR deals.

Take the time to find the best financing around and combine it with your credit card, and you’ll be well on your way to buying a new car.

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