Not many people would consider buying a car with their credit card. Yet some people find the protections and rewards from using their rewards credit card very alluring and worth doing. Most auto dealers however do not like to take credit cards as payment for a car, so you may have an uphill battle on your hands. Generally most auto dealers will not accept a credit card for the full purchase of a car. This is mostly due to the fact that the card dealer is required to pay a processing fee which varies from 1 to 3 percent, sometimes higher, so the dealer can lose a lot of money depending on what percent the credit card is charging, although even a 1% processing fee can take its toll on the dealers profit.
Auto dealers however will allow you to pay for part of a car’s sale price on your credit card. They do this to keep customers happy, and by only allowing part of the price to be paid on plastic, they do not take a huge hit to their profits. Dealers will often limit the amount you can place on your plastic, usually from $2500 to $5000 dollars. Car dealers have to accept at least part of the payment on plastic due to their contracts with the credit card companies, which forbid dealers from refusing credit cards totally. If a dealer refused to allow you to put part of a car’s sale price on a credit card, you could always call the credit card company to let them know the dealer is refusing to accept credit card payments and let them handle the problem on your behalf.
Some auto dealers however will allow you to pay for an entire car on plastic. You just have to shop around. This is most common with used car lots, especially with cars that have been sitting on the lot for quite sometime. Even buyers who have the cash outright for a used car will often go with putting it on a rewards card and then paying the balance in full the next billing cycle and rack up the easy rewards. Used cars tend to have a decent mark up on them and the overhead is less for a used car lot then an auto dealership specializing in brand new cars, not to mention used car lots have much more competition than auto dealerships. The other exception to the general rule that auto dealerships will not allow an entire purchase to be placed on a credit card is your luxury cars that cost $75,000 dollars or more such as Vipers, Bentleys and Aston Martins, as the dealer stands to make a hefty profit even with the credit card processing fees.
If you do decide to place your entire car or part of the cars payment on plastic, do not discuss this before negotiating the price of the car. The reason is simple the dealer once he or she knows you are planing to pay for it on credit might not offer you the best price due to the credit processing fee the dealer will have to pay. You also need to figure out how much interest if any you will be paying if you do plan to fund the purchase with your plastic. If you are placing it on credit simply for the rewards be sure you have a plan in place to avoid any interest whatsoever. You Don’t want to incur debt over some small credit reward program.
Why would anyone want to pay for an entire car or part of a car on a credit card? Some people might not have cash for the down payment or the cars price in full and do not wish to go for an auto loan. Some people have special financing with their plastic, such as 0% APR for 18 months. The biggest reason for many however is to use ones rewards credit card to accrue a hefty amount of points or airline miles. If for example your rewards card gives you cash back of say 2 percent, and you placed $6000 dollars on it, you would get back $120 dollars. Yet the biggest rewards are for airline miles rewards, where a $6000 dollar purchase on the card can lead to a nearly free airfare. These are great incentives and can be even better if you find a zero percent promotion for a balance transfer (like the Example Seven Slate), that allows you to further extend your cash and leverage the car against other bills you need to pay first or investment opportunities.
Paying for your new or used car on plastic can have it’s downsides, even if you only put $5000 dollars partial payment on a credit card. While it was rather common to use plastic to pay for a car during the recession, paying for it via credit card can quickly lead to debt if you do not have a plan to pay the balance off in full. High APRs and only making the minimum payment for example could lead to a higher debt than it would have been to simply pay in cash, check or via a low interest auto loan or a good dealer financing deal.
This article was written by Steven Moore, who has been covering consumer finance and the credit card markets since 2006. You can learn more and connect at his Google+ page.