A big task with many moving pieces is buying a car. Your down payment, monthly payments, and other expenses are probably front of your mind while you look for the automobile you want. These nuances often stop buyers from buying because having a financial cushion is a must.
Those who have money to spare can say that they are lucky, but if a person does not have it, you can get $100 instantly with Triceloans or borrow money from friends, or there is another option, namely the credit card. Can I purchase a car with a credit card? That is a common question.
Although the short and broad answer to the question is yes, other external circumstances may impact or rule out this possibility and are worth additional examination. These considerations include things like the credit card policies of your dealer and vehicle lender, your credit limit, and your financial situation.
At the same time, you should consider whether charging a vehicle’s full price or the down payment on a credit card is a wise financial decision for you. It is not a choice for the majority of individuals.
Accepting Credit Cards at Vehicle Dealerships?
It varies. While some auto dealers accept credit cards for the whole purchase price of the vehicle, others only accept them for the down payment on a car loan. It may be because a dealer must pay a credit card processing fee each time a credit card payment is accepted. This fee typically ranges from around 1% to 3.5% of the transaction amount.
Large purchases can quickly add up in processing fees. If you were to use a credit card to buy a $30,000 car from the dealership, for example, a 3% processing fee would cost $900.
Many dealerships allow various means of payment, such as cash, money orders, personal checks, cashier’s checks, and ACH transfers, to avoid paying exorbitant credit card processing costs.
Verify Your Credit Limit Is High
You’ll need a credit limit that is high enough to cover the cost of the purchase if you want to use your credit card to pay for the automobile in full or even just put a sizable down payment on one. Calling your bank or credit institution could be necessary if your present limit is on the lower side.
If your account is in good standing, you can ask to have your credit limit increased. If so, your request may very probably be approved. Unfortunately, Americans have been buying cars less often in recent years.
Furthermore, if you have multiple cards from the same issuer, they will typically allow you to transfer some of the credit limits from one card to the other. You might be able to combine two $5,000-limit cards into one with an $8,000 limit and another with a $2,000 limit, for instance, if you currently have two cards with the same limit.
The amount of your credit limit that is presently being utilized, or your credit usage, is a crucial factor to take into account when making a purchase. Your credit score may suffer if you’re using that limit at 30% or more of the time. Therefore, if your credit card has a $10,000 limit, it would be imprudent to spend more than $3,000 of it without anticipating a significant drop in your credit score.
Keep these things in mind when determining whether to pay for your automobile using a credit card. Depending on how you go about it, it could or might not be worthwhile.
Your Credit Score Is Affected
You must be aware of how using a credit card to purchase a car may affect your credit usage percentage. This ratio represents the difference between the total amount of available credit and the total credit you have utilized.
Your credit report is likely to decline if your credit card balance exceeds 30% of the credit card limit. As an illustration, consider the following.
Consider that you had a credit card with a $30k credit limit and no debt. You’ve had your eye on a $15,000 used red Toyota Camry. If you charge the whole cost of a new automobile to your credit card, what happens to your ratio is as follows:
15/30 =.50, or 50%, credit usage ratio. Overly high!
Your score may be lowered if your usage ratio is 50%. If your situation allows you to go with a lesser score for a few months, that is OK. You shouldn’t jeopardize your credit score if you intend to seek additional credit, like a mortgage, in the upcoming six months.
But using a credit card to make a $5,000 down payment is another story. 5,000 / 30,000 equals 16.7% for your new usage ratio. This technique is something to think about if you have the money on hand to pay the bill in full right away and you solely use your credit card to earn points.
There May Be Benefits
Given these disclaimers, it would appear that using a card for payment is never a smart move. However, there are strategies for succeeding; you simply need to prepare ahead to make sure you have or can obtain a card that optimizes the benefits you desire. Statistics show us that the number of car purchases in the USA fell from 16 million in 2019 to 14.4 million in 2021.
There are several new cards that provide big 0% promotion periods if you want to utilize some free money for a time (if you qualify, of course). As usual, you must have the funds available to pay before the amount reverts to your standard interest rate.
You may already have a card that, for a limited time, allows 0% balance transfers; however, you should check for transfer fees, which might be as high as 3% of the transfer.
The option of leveraging the auto purchase to accrue a sizable amount of miles, points, or cash back may be more alluring to card rewards junkies. The majority of credit cards don’t restrict your rewards. Cars aren’t a normal bonus category. However, there are instances when specific bonus categories are capped.
Before you purchase your next vehicle, consider each payment arrangement’s advantages and disadvantages thoroughly. If you choose to use a credit card to pay for the purchase of the automobile, or even just the down payment, be sure you have a strategy to pay it off as fast as possible to save interest rates.