Posted on: Aug. 08, 2017 in Car Loans, Credit

What do you do when you need to buy a new car but you don’t have the cash?  Can you put the whole thing on your credit card (or spread it over a few)?


The answer, unfortunately, is probably not. Most car dealerships won’t let you charge the entire purchase price of a vehicle, but the reason has more to do with them than you. Generally, it has to do with credit card fees. Car dealers and other merchants must pay a fee whenever you pay with plastic. This transaction fee runs about 1% to 3% of the sale comes out of the merchant’s pocket and gets paid to the card network or bank.

Many car dealers will let you charge some of the car, usually some predetermined limit up to $5,000.

If you could charge the whole thing, should you? Do you even want to charge what portion you can? Well, maybe. It depends. There are two circumstances that can make this very enticing:

  • You get rewards when you spend on your card. Whether it’s cash or points or miles, using a card to accumulate a reward for every dollar you spend can seem like a way to make money on things you were already going to buy, which is exactly what the card company wants.
  • You have a promotional 0% interest rate. This makes it look like the money is free to borrow. And it is, for now.

Let’s address these.

The reward points are great, but only if you don’t end up paying more interest than the value of the reward. You’ll want to make sure you can pay the card off by the end of the month so that you don’t start accruing interest. A car loan can have an interest rate as low as 4% (maybe lower) depending on what you qualify for, whereas most credit cards are much higher. If you’re going to be paying over time, make sure you’re paying the lowest interest rate possible.

When it comes to a zero percent card, you must keep in mind that this is usually a promotional rate and it will come to an end. If you haven’t paid off the amount in full by then, the interest will start to accumulate. If you’re charging to one card for reward points and then transferring to a 0% card for the promotion, bear in mind you’ll also have to pay a transaction fee which can amount to four or five percent of the balance. Again, you’ll want to compare this to the interest rate on the auto loan

At the end of the day, a credit card can be a useful and helpful way to make that down payment on your car. Just make sure you read all the fine print and know what your terms are for payoff so it doesn’t come back to bite you later.

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