While it may seem unusual to the ordinary customer, there is nothing legally prohibiting you from buying a car using a credit card. With enough accessible credit, you may put down a down payment or even make a down payment as long as your credit limit is high enough.
Having said that, many dealerships have a credit card payment limit. For credit transactions, merchants are charged a fee, which is a tiny percentage of the wholesale. So, on a significant transaction, such as a new car, the dealer may spend hundreds or even thousands of dollars only on credit card fees. For the same reason, some dealers may levy a 2-3% premium on credit card transactions to assist cover the expenses. Your dealer will choose how much you may put on your card, although most will restrict credit card charges to $5,000 to $10,000.
The main issue isn’t whether you can or should buy a car using a credit card. There are various reasons why using a credit card to buy a car may be advantageous. For example, you may receive the title in your name right away and get quick possession without the need for a lienholder. Perhaps you have an interesting incentive program from your credit card issuer that provides you with some compelling perks for using it.
Regardless of why you want to use a credit card to buy a car, there are certain aspects you should examine before making a purchase.
Check to see whether you can afford to pay the bill
It may seem obvious, yet many consumers charge a car to their credit card without fully accounting for how they will handle the purchase.
As previously said, some customers use a credit card to buy a car in order to receive incentives. Many creditors provide cardholders with incentive-laden packages, many of which include incentives such as 1% cashback on all transactions. Let’s pretend you charge the highest amount that most dealers would take (a $10,000 down payment) for the purpose of this experiment. Under these circumstances, you would only get a $100 reward for this purchase.
And, although car loan rates are at an all-time low, credit card interest rates are not. So, unless you can pay off your amount promptly, whatever benefits you earn will be wiped away nearly instantly by the interest rate on your credit card.
One exception to this strategy would be to use a new card with a 0% introductory APR. However, although this helps save you money on interest rates in the beginning, you must be cautious. Assume you do not pay off the debt before the promotional period expires. In such instances, you’ll wind up paying interest, which might put you in a tight financial situation while also negating any advantages from using your credit card.
Ensure that you have a high credit limit
To buy a car altogether using your credit card or even make a significant down payment, you’ll need a sufficient credit limit. If your current limit is quite low, you may need to contact your bank or credit institution. You may seek an increase in your credit limit, and if your account is in good standing, your request may be granted.
Furthermore, if you have several cards from the same issuer, they will usually be ready to move part of the credit limits from one to the other. For example, if you have two $5,000-limit cards, you may be able to convert them into one $8,000-limit card and one $2,000-limit card.
Before you purchase, you should think about your credit usage, which is the proportion of your credit limit that is presently being utilized. If you are presently using 30% or more of your credit limit, your credit score may suffer. So, if your credit card has a $10,000 limit, it’s not a good idea to spend more than $3,000 of it without anticipating a significant drop in your credit score.
Consider these variables while determining whether to pay for your car using a credit card. It may or may not be worthwhile depending on your approach.
Before making a purchase, notify your credit card company
Whether you are buying a car altogether or want to make a significant down payment using your credit card, you should first contact your creditor. Call them and inform them that you are going to purchase a vehicle and charge a huge sum of money on your credit card. To prevent any hiccups, it’s important to contact them ahead of time. Otherwise, a transaction of that amount might set off a fraud alert, delaying the purchase.
Utilize Manufacturer Credit Cards
Obtaining an automaker’s branded credit card is another viable option worth considering. You earn awards with every transaction, just like a standard credit card, and you can use these rewards toward the buy of a car. This is, in principle, a reasonable alternative for individuals with strong credit. However, you would have to spend a large amount of money to earn enough incentives to buy a new car or even make a big down payment.
GM is one of the significant firms in this field. The carmaker had its GM Card, which is currently known as the Capital One BuyPower Card. Cardholders receive cashback benefits that may be used to buy or lease a new Chevrolet, GMC, Cadillac, or Buick. You may also use them at GM dealerships for servicing, repairs, and accessories.
Promotional discounts are continued, rewarding clients with 5% off the first $5,000 spent each year and 2% off all subsequent purchases. In this case, if you placed $1,000 on the card each month, you’d receive around $315 in rewards every year. It’s not a tiny chunk of money, but it’s significantly less than the cost of a car.
Is There a Better Alternative?
Before making a significant credit card purchase, you should always analyze your financial circumstances and determine whether you are making a prudent option. Typically a secured credit card will have a relatively low balance so it is best to avoid applying for one to purchase a car. While it may feel nice to get a large credit card reward or buy a car without having to pay out of pocket, it is not always the best option. When using a credit card to buy a car, it is quite easy to overspend and place yourself in a precarious financial position if you do not carefully weigh the costs and advantages before signing on the dotted line.
For many individuals, it may make more sense to seek a low-interest car loan rather than putting a large quantity of money on their credit cards. Some dealers may even offer 0% financing to well-qualified consumers who have strong credit. While it may not provide the same immediate delight as a credit card incentive, it may be more financially advantageous in the long term.