It makes sense to shop around when you’re looking for a new or used car. Beyond finding the best price on the right car for your needs, you also need to look for financing.
Unless you have enough money set aside to pay for your new car, you’ll need a car loan or personal loan to finance the purchase. And if you’re feeling adventurous or struggling to qualify for such loans, you can even weigh the pros and cons of buying a car with a credit card.
Can you buy a car with a credit card?
Simple answer, yes. However, is this your best option?
Before buying a car with a credit card, you should first find out if your dealership even offers this option. Most of the time, they won’t let you charge the full purchase price of your car — instead, they’ll let you put up to $5,000 of the purchase on a credit card. Second, you need to make sure your credit card limit is high enough to cover the amount you want to charge.
So let’s say you still think it’s a good idea, you buy a car for $10,000 and you have the option of charging up to $5,000. To cover the rest of the purchase price of your car, you will need to find money or apply for a loan. If you buy a cheaper used car, on the other hand, you may be able to charge the full purchase price.
Like anything else, just because you can do something doesn’t mean you should. Here are some cases when paying for a car with a credit card makes sense — and when it doesn’t.
Buying a car with a credit card makes sense if…
You use a card with 0% interest on purchases.
With a 0% interest credit card, you can earn zero interest on your purchase for nine to 21 months. If you charge $5,000 on a card that falls into this category, you could reasonably pay off that portion of your auto loan during that time without paying a dime in interest charges.
However, before you go down this road, you need to make sure that you can afford to pay off your car fairly quickly. If you don’t pay your debited balance during your card’s 0% promotional period, you’ll end up paying credit card interest when your card’s rate resets – which will be way higher than the rate you’d receive on a good car loan.
You want rewards and have the money to pay for it.
Let’s say you buy a relatively inexpensive car, to begin with, and you have the cash on hand. By paying for a cheap car with a rewards credit card and paying off the balance immediately, you could earn valuable rewards without much effort on your part. Since most rewards credit cards offer kickbacks worth between 1% and 5% of a purchase, you could benefit handsomely from this small gesture.
Also: The best business credit cards with travel rewards
Your credit is good.
With good credit, you can qualify for a credit card that can make paying for your car purchase worthwhile. As mentioned above, zero rate credit cards offer a great opportunity to avoid paying interest on at least part of your purchase. If you’re in it for the rewards, on the other hand, the best travel and rewards credit cards are generally only available to people with a FICO score of 720 or higher.
So if you don’t already have an awesome 0% APR or rewards credit card, don’t despair. With a little research, you can apply for a great credit card before you walk into a dealership.
Additionally, some of these cards offer huge sign-up bonuses worth hundreds of dollars to new cardholders who meet certain spending criteria – for example, making purchases of $3,000 with a new credit card within the first 90 days. Charging part of your car purchase is a surefire way to meet these requirements all at once – as long as you can pay it back.
Also: The best starter credit card without credit
You shouldn’t buy a car with a credit card if…
Your credit card charges a high interest rate.
If your credit card charges a high interest rate, you should consider dealer or bank financing instead of using your card. Many car dealerships offer special promotions that make financing downright cheap, and you may be able to get a better deal from your bank. According to an ongoing study by Bankrate, the average interest rate on credit cards is over 16% in March 2022. Surely your bank or dealer could do better than that.
You want to pay off your car slowly.
If you’re hoping to pay for your car at a leisurely pace, a credit card probably isn’t ideal. Since the average interest rate is well into the double digits, you’ll pay a lot more interest over time if it takes you a while to pay it off. Most zero rate credit cards offer an APR of 0% for nine to 21 months. These introductory offers are therefore not long enough to help you if you need four or five years to pay off your car.
You don’t have good credit.
If you have bad credit, you should proceed with caution no matter what type of financing you choose. You can’t get the best rates with a credit card, traditional bank, or even dealer financing with bad credit.
The best thing to do is to research the best rate you can find and save the biggest down payment possible. The larger the cash deposit you can get, the less you will need to borrow and the less risk you will present to a lender. In the meantime, you can find ways to start increasing your credit score over time.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]