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using a credit card to buy a car
4 May 2019

A Credit Guide to Using a Credit Card to Buy a Car

For most of us, our vehicle is our lifeblood. After all, the average American drives almost 13,500 miles every year!

When it’s time for you to buy your first car or upgrade your current vehicle, you might need to think outside the box when it comes to financing. Most people choose to go with dealer financing or get a direct loan, but are there other options?

Have you ever considered using a credit card to buy a car or refinance your car loan? Is this even possible? If it is, is it a good idea?

Here’s what you need to know about this innovative approach to financing your vehicle.

Can You Use a Credit Card to Buy a Car?

First things first, as long as your credit limit is high enough, there are no restrictions from credit card companies that would keep you from using your card to buy a car. However, the dealership is likely to restrict how much they’ll let you charge on the card.

Many set this limit at $5,000, so if you purchase a vehicle for more than that, you’ll still need to come up with cash or other financing. If you happen to purchase a car that’s below the limit the dealer sets, then there’s no reason why you couldn’t buy a car with your credit card.

Just because you can do something, though, doesn’t necessarily mean you should. So is it ever a good idea to pay for a vehicle with your credit card? Let’s find out!

When Is Using a Credit Card to Buy a Car a Good Idea?

Making any kind of large purchase with your credit card can be a slippery slope, so you’ll definitely want to approach this with caution. Putting a big-ticket item like a credit card can negatively impact your credit score, and will often result in a much higher total payment than you would have if you used traditional financing. Here are three times when it can make sense to buy a car with your credit card.

You’ve Got a Zero-Percent Interest Rate

If you can get a card with a zero-percent interest rate like with a balance transfer card, and this rate lasts for longer than it will take you to pay it back, then this can be a good financial strategy. Be careful, though. Many of these promotional offers charge you a huge amount of back interest if you don’t pay off the entire balance by the expiration date.

Unless you’re 100 percent sure you can meet the pay-off requirements, don’t take this chance.

You Have a Great Rewards Card (And Cash to Pay It Off)

Many credit cards offer great perks like cash back, frequent flyer miles, and other benefits. If you have enough cash on hand to pay off your card right away, go ahead and charge as much as you can. Just make sure that you pay it off immediately.

If you don’t pay the card off right away, you’ll likely end up paying interest charges that might even be more than the benefit you’ll get from your rewards.

You Have Great Credit

If you have great credit and enough time to do your research, you might find a credit card offer that’s too good to pass up. If you can get a zero-percent interest rate, a great rewards benefit, and a sign-on incentive, that will make putting your new car purchase on the card well worth it.

To qualify for these types of cards usually requires a credit score of at least 720 and a good debt-to-equity ratio. If you think you fall into this category, consider checking out your options.

When Is Using a Credit Card to Buy a Car a REALLY Bad Idea?

Although in the situations above it can make sense to use your credit cards to buy a car, in most cases, it’s not a great idea. Here are three red flags that let you know this is definitely not the right strategy for you.

Your Credit Card Has a High-Interest Rate

With average credit card rates ranging between 15 to over 26 percent, it’s clear to see why making a major purchase with them might not be the best idea. As long as your credit isn’t horrible, you’re likely to qualify for a regular vehicle loan with a far lower rate.

Many dealerships offer financing incentives, and you might also find a good deal at your bank, credit union, or even through an online search.

You’re Not Sure You Can Make Your Payments

If your income isn’t steady or there’s another reason why you might not be able to make your minimum payments, you should proceed with caution before taking out any type of loan. Instead, work on saving up enough cash to either buy the whole thing outright or at least come up with a large down payment.

You Want to Stretch Out Your Car Payment

If you want to keep your monthly payment low, stretching out your loan for several years is a good option. However, if this is your goal, then using your credit card isn’t a good plan. Since the interest rates are generally higher on credit cards, then the longer you stretch out the payments, the more you’ll end up paying in interest costs.

Some vehicle loans let you stretch out your payments for as long as 72 or 84 months. This isn’t necessarily a good idea since your vehicle will depreciate significantly in that amount of time, but it does give you more flexibility when it comes to your payment. If you choose an extended option like this, make sure you’re able to pay off your loan ahead of time and make that one of your primary goals.

Explore More Financing Options

At Bonsai Finance, we evaluate many lending options and help you choose the best one for your personal circumstances. Before you consider using a credit card to buy a car, check out some of your other options. Start by checking out our list of the best personal loans available online today. Here are some other articles you might find helpful:

Mortgage and auto credit – common types of installment loans
3 surprising ways guaranteed approval credit cards are good for your credit
5 answers to common auto insurance questions
4 easy credit cards to get for people with bad credit