With the average new vehicle price over $48,000, it is one of the largest purchases consumers make. While it is a large expense, it is also an opportunity to earn a pile of rewards on your purchase.
In most cases, you can use a credit card to buy a car, but the benefits may not outweigh the costs. Some dealerships may limit how much you can charge to a card or charge a transaction fee paying with a card.
Here’s what you need to know about paying for a car with a credit card.
Do car dealerships take credit cards?
Like most businesses today, car dealerships typically accept credit cards. This payment option allows customers to pay for vehicles, parts, service and other purchases. It’s one of many payment choices customers have at the dealership, including cash, check, official check and wire transfers. Of course, dealerships also provide financing when purchasing a vehicle.
Can you use a credit card for a down payment?
Typically, yes, you can use a credit card to make your down payment. However, merchants who accept credit cards have to pay interchange fees of approximately 3%. For this reason, many dealerships and other businesses may limit how much you can pay with a credit card, or they pass the surcharge along to the buyer. This means you might have to pay an additional fee to pay at the dealership for a down payment or outright purchase of a car.
Beyond the down payment, car dealerships often allow customers to use credit cards to pay for other aspects of a car purchase. If you’re paying for repairs, parts, or buying an extended warranty or service contract, you may be able to pay for the entire cost with your credit card. For these purchases paying a surcharge will be at the dealer’s discretion. Additionally, if you’re buying upgrades or aftermarket add-ons, the dealership may accept your credit card for the entire purchase price.
Factors to consider when paying for a card with a credit card
Before pulling your card out of your wallet, pay attention to these factors to determine if paying for a car with your credit card is the right choice.
Interest rates
The average credit card charges almost 28%, while the average new car loan has an interest rate of 7.1%.
“Usually, interest rates on auto loans are lower than credit cards, so if you’re not paying off the balance in full, you may be paying more than what you would with a traditional auto loan,” said Margaret Poe, head of consumer credit education at TransUnion.
One way to lower the cost of buying a car with your credit card is to take advantage of 0% intro APR offers on purchases. These promotions are typically less than two years, so they have a shorter term than most car loans. However, they have no interest throughout the promotional period, so they can be a smart choice for people motivated to pay off their car loans quickly.
Service charges
Make sure that you understand any costs involved with using your credit card to buy a car. Many dealerships will accept your credit card for some or all of the purchase price, but they may tack on fees of 2% to 3% or more to cover their processing charges. Paying these fees may make sense in some situations. However, the extra cost may not be worth it for your situation.
If you’re earning rewards or working toward a welcome bonus, you may come out ahead. If not, consider putting only enough on the card to get the bonus. This will get you the bonus, while minimizing the extra charges.
Rewards earned
One of the primary reasons consumers want to use credit cards for purchases is to earn rewards. Buying a high-ticket item like a car with a credit card could earn a huge amount of rewards. Credit cards that offer a high rate for everyday purchases can provide even more rewards on the purchase of a new car.
A card that offers a high flat-rate like the Citi Double Cash® Card or bonus rewards for top customers like the Bank of America® Customized Cash Rewards credit card are excellent choices to maximize rewards on a car purchase with a credit card. Also, car brand-specific cards like the My GM Rewards® Mastercard®*The information for the My GM Rewards® Mastercard® has been collected independently by Blueprint. The card details on this page have not been reviewed or provided by the card issuer. earn rewards on all GM purchases.
Annual spending bonuses
Even though your credit card may not offer bonus rewards for a car purchase, it can still be a wise move to use your card to make the purchase. Many credit cards offer additional benefits when you reach certain spending thresholds each year. Here are a few credit cards with annual spending bonuses that you should consider:
- The World of Hyatt Credit Card*The information for the The World of Hyatt Credit Card has been collected independently by Blueprint. The card details on this page have not been reviewed or provided by the card issuer.: Earn an extra free night in a Category 1-4 Hyatt hotel or resort if you spend $15,000 in a calendar year.
- Hilton Honors American Express Surpass® Card (terms apply): Earn a Free Night Reward after spending $15,000 on eligible purchases in a calendar year. Upgrade to Hilton Honors™ Diamond status after spending $40,000 on eligible purchases in a calendar year.
- Citi® / AAdvantage® Platinum Select® World Elite Mastercard®*The information for the Citi® / AAdvantage® Platinum Select® World Elite Mastercard® has been collected independently by Blueprint. The card details on this page have not been reviewed or provided by the card issuer.: Every eligible mile earned from credit card purchases count toward elite status. Earn an American Airlines flight discount of $125 after spending at least $20,000 during your cardmembership year and renewing your card.
Impact on your credit score
Buying a car with a credit card isn’t always a positive thing.
“The balance on your credit card, if not paid promptly, could increase your credit utilization ratio. Because utilization tends to be an important credit score factor, this could lower your credit score,” said Poe.
Typically, you should aim to keep your utilization as low as possible to maintain a good credit score. If you max out your credit limit, your credit score could drop considerably. While this impact is temporary until you pay down the balance, it could affect your ability to get the best rates and terms on other loans.
What can a strong credit score do for you? Here are 5 benefits of a good credit score.
Credit card spending limit
Credit limits vary based on a variety of factors, including your annual income and payment history. According to TransUnion, in December 2023, the average credit limit per consumer is $24,884. With an average purchase price of $48,000, the price of a new car exceeds the typical consumer’s available credit. Even if a dealership allowed it, many consumers wouldn’t be able to fit the entire purchase on one credit card.
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Bank of America® Customized Cash Rewards credit card
BLUEPRINT RATING
Our ratings are based on specific use cases for each card. We compared this card to others in the same category and developed our rankings based on this criteria, along with our editorial input. Note that although we chose this card as the best in its category, the right card for you will depend on your own financial circumstances.
On Bank of America’s secure website
BLUEPRINT RATING
Our ratings are based on specific use cases for each card. We compared this card to others in the same category and developed our rankings based on this criteria, along with our editorial input. Note that although we chose this card as the best in its category, the right card for you will depend on your own financial circumstances.
Welcome bonus
$200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening.
$200
Annual fee
$0
Regular APR
19.24% – 29.24% Variable APR on purchases and balance transfers
Credit score
Credit Score ranges are based on FICO® credit scoring. This is just one scoring method and a credit card issuer may use another method when considering your application. These are provided as guidelines only and approval is not guaranteed.
(700 – 749) Good, Excellent
Earn 3% cash back in the category of your choice, automatic 2% at grocery stores and wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases) and unlimited 1% on all other purchases.
Editor’s take
Pros
- Lengthy intro APR financing on both new purchases and balance transfers.
- Flexibility to choose your preferred cash-back category.
- Solid welcome bonus after meeting spend requirements.
Cons
- Elevated cash-back rates have a quarterly spending cap.
- Few benefits.
- There’s a foreign transaction fee.
This card’s unique rewards structure lets you choose each month which spending category from a list of six where you want to earn elevated cash back. It’s sure to be a favorite for consumers who need flexibility.
Card details
- $200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening.
- Earn 3% cash back in the category of your choice, automatic 2% at grocery stores and wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases) and unlimited 1% on all other purchases.
- Choose 3% cash back on gas and EV charging station, online shopping/cable/internet/phone plan/streaming, dining, travel, drug store/pharmacy or home improvement/furnishings purchases.
- If you’re a Bank of America Preferred Rewards® member, you can earn 25%-75% more cash back on every purchase. That means you could earn 3.75%-5.25% cash back on purchases in your choice category.
- No annual fee and cash rewards don’t expire as long as your account remains open.
- 0% Intro APR for 15 billing cycles for purchases, and for any balance transfers made in the first 60 days. After the Intro APR offer ends, a Variable APR that’s currently 19.24% – 29.24% will apply. A 3% Intro balance transfer fee will apply for the first 60 days your account is open. After the Intro balance transfer fee offer ends, the fee for future balance transfers is 4%.
- Contactless Cards – The security of a chip card, with the convenience of a tap.
- This online only offer may not be available if you leave this page or if you visit a Bank of America financial center. You can take advantage of this offer when you apply now.
Pros and cons of buying a car with a credit card
Pros
- Earn valuable rewards.
- Get interest-free financing through promotions.
- Don’t need to get approved for a new loan.
Cons
- High utilization could impact credit score.
- Dealerships may charge extra fees.
- Credit card interest rates are expensive.
Alternatives to using a credit card to buy a car
Using a credit card to buy a car could be a smart decision for certain situations. But before swiping your credit card, consider other financing options that may be a better choice.
- Get preapproved for an auto loan: Shopping around for the best interest rate and terms gives you an advantage when buying a new car. Having preapproved financing allows you to focus negotiations on the price of the vehicle rather than the monthly payment.
- Use a home equity line of credit (HELOC): A home equity line of credit uses your home’s equity to finance purchases. These interest rates tend to be variable, but they may be lower than the dealer’s financing option. HELOC payments are typically interest-only, so your monthly payment should be lower than a traditional auto loan.
- Credit card cash advance checks: Cash advances on a credit card often carry higher interest rates than standard purchases. However, credit cards often send out promotional checks with low interest rates. Use these promotions to get a better interest rate on your purchase. Keep in mind that these transactions do not earn rewards or count toward earning a bonus or other benefits.
- A personal loan: Personal loans generally come with a lower interest rate than what you’ll find on a credit card. But like all types of loans, it pays to shop around to find the best rates.
Final verdict
Buying a new car offers a unique opportunity to earn valuable rewards and benefits with your credit card. There are numerous advantages to using your credit card for such a large purchase, but beware that dealerships may limit how much you can charge or tack on extra fees to cover processing costs.
Credit card interest rates are typically much higher than auto loans, so you’ll need to pay off the balance quickly to avoid extra interest charges. Additionally, large purchases like a new car can hurt your credit score by maxing out your credit limit or having a high utilization ratio. Evaluate all financing options before swiping your credit card at the dealership.
Frequently asked questions (FAQs)
Many dealerships limit the amount you can charge on a credit card when buying a car. Customers may be able to charge their down payment and pay for additional options, like upgrades or extended warranties. If you want to charge the entire purchase to your card, the dealership may charge extra fees.
Your credit utilization ratio accounts for 30% of your credit score. By making a large purchase on your credit card, you may get too close to your credit limit and hurt your credit score by maxing out your card. Typically, consumers should keep their balances below 30% of their credit limit to maintain a good credit score.
Using your credit card to buy a car can be a good idea in certain situations. You may be able to earn rewards, meet spending requirements for a welcome bonus or receive extra benefits based on your total annual spending. Weigh the value of these benefits against any fees the dealership charges, and make sure to pay the balance off before high credit card interest rates apply to your purchase.
*The information for the Citi® / AAdvantage® Platinum Select® World Elite Mastercard®, My GM Rewards® Mastercard® and The World of Hyatt Credit Card has been collected independently by Blueprint.The card details on this page have not been reviewed or provided by the card issuer.
