If you want to earn credit card rewards for your spending and you can pay off the balance in a month or two, it may be a wise move that could reap big rewards. But it's a bad idea if you can't afford a car and don't want to apply-or don't think you'll qualify for an auto loan. In fact, it's downright terrible.
Before you lace your sneakers and head to the dealership, plastic rectangular in hand, it's crucial to examine the pros and cons of this purchasing scenario. Doing so may save you a headache-and a lotta money.
Walt is referring to a processing fee. The card issuer will charge a processing fee if you pay for a merchant with a credit card. The total cost of these fees is usually between 1.5% and 3.5%. It's often worth it for stores to pay for this fee, as providing customers with the option to pay with a credit card does not always result in more business. But a car dealership does not have theinclination to pay a processing fee for a purchase amounting to tens of thousands of dollars.
Some car dealerships may be able to offer you the chance to swipe your card. Some may allow you to make at least the down payment, while others may allow you to split your payment between card and cash. And you might find a unicorn: the dealership that will let you pay for the whole thing with your credit card.
If you're dead set on purchasing a car with a credit card, you can make it a topic during the negotiation process. If you're willing to bear the cost of the transaction, you may request that the dealership add some processing fees to your bill.
If you plan on a big purchase, you can get some amazing value by utilizing a credit card.
If you spend a lot, you can earn a lot of rewards for it. If you use a card like the Wells Fargo Active Cash® Card, which receives 2% back on all purchases, you will receive an effective rebate of $400. It's not bad, but it's probably only worth it if you don't get stuck with the processing fees. You can supercharge your rewards by grabbing a welcome bonus, however.
You can split the payment across multiple cards and easily earn bonuses.
Terms are subject to change and subject to change at the sole discretion of the issuer.
With a minimum spending limit of 296,000 points or miles, you'll have at least 296,000 points or miles from the above cards. If you use those rewards, you could squeeze several thousands of dollars out of your car purchase, depending on how you use them.
Credit cards can give you some incentives for spending a certain amount each year. In addition, each year, the Hilton Honors American Express Surpass® Card earns a free night certificate from the Hilton, which is awarded to individuals who spend at least $15,000 on the card. You can get a free night at most Hilton hotels worldwide, including five-star resorts that cost $2,000+ per night.
There's a reason to avoid buying a car with a credit card-the first being interest.
The average credit card interest rate in America is 20.68%. If you pay $500 per month for a $20,000 balance on a card that charges 20.68% APR, you will end up paying more than $14,000 in interest alone when you pay the card off. That's double or more the interest you'd pay with the average used car loan interest rate, which ranges between 9% and 12% as of August 2023.
If you're able to pay off your cards and card debt within a month, you're likely to have a car with your credit card. If you have a high balance, your credit score could take a significant hit if it takes longer than that. To maintain a good credit score, keep your credit card balances low.
Pros and cons of buying a car with a credit card?
In contrast to using a credit card to buy a car, you have plenty of 'traditional' options to finance the purchase or get approved for a loan.
If you're able to get a car, getting an auto loan is often the best route to purchasing it. APRs for credit cards are often significantly lower than interest rates. A car loan can boost your credit score by enhancing your credit mix, which considers the various types of credit accounts you have, includingmortgages, credit cards, auto loans, and personal loans.
If you don't have the credit to get approved for an auto loan, it's worth asking a trusted family member or friend to co-sign your loan. If you're given a better chance at acceptance, you'll likely have a better interest rate.
If you're considering using a credit card to fund a purchase you can't afford, don't do it. If you have a car you want to sell, you can knock thousands of dollars off your total cost. When you trade a car, your total purchase cost will be a difference between the cost of the car you're buying and the credit for your trade.
Some car dealerships may accept a credit card payment for some or all of a car's asking price, but many will not. Even if they do, you may be asked to pay a convenience fee of between 1.5% and 3.5%, which can add to your total expenses.
If you want to earn rewards, welcome bonuses, or other credit card incentives, make sure to pay off the entire purchase before you're subject to interest charges. The average credit card APR in America is over 20%, making it difficult to get out of debt if you have a high balance.