Can You Pay for a Car with a Credit Card?
The question in that headline calls for a simple answer: Yes or no. And if a simple answer is what you want, we’ll give it to you straight. Yes, you can use a credit card to pay for a new car, a used car, or your monthly payment on a new or used car.
Why might you want to put a car on a credit card? For several reasons.
- Work it right, and a credit card could lower or even eliminate the interest on a car purchase.
- It could help you get your mitts on the title sooner than you might with a conventional auto loan.
- With some credit cards, a major buy like a car could have you rolling in rewards points or cash-back benefits.
So, if that’s all you want to know, then our work here is finished.
Trouble is, buying a car usually doesn’t involve simple answers like that. When you use a credit card for those new wheels, the answers get even more complicated.
Here, then, is a better answer to the question in the headline: Yes, it’s possible to pay for a car with a credit card, but it’s downright risky. Just because you can doesn’t necessarily mean you should.
For that reason, we urge you to read on.
Can You Pay a Monthly Car Payment with a Credit Card?
Like we said, the simple answer is yes, it’s possible to use a credit card for your monthly car payment.
Say you put $1,000 down on a $13,000 car and you’re looking at monthly payments of $350 over three years to pay off the $12,000 balance. A $350 charge probably won’t put the squeeze on your credit limit or crater your credit score like a one-time $13,000 charge might if you used the card for the entire purchase price. So yes, using a credit card for that $350 bill might make sense … assuming your lender will let you do it.
Here’s the thing: Most lenders won’t let you do it because the credit card companies impose a fee of about 3% for every card transaction they process. In other words, it generally costs your lender 3% (about $10.50) of your monthly payment when you use a credit card.
He or she is going to be happier with you if you’re making your payments with a direct transfer from your checking or savings account, or you’re using a debit card or a money order, or (going old school here) you’re actually writing a personal check and sending it via snail mail.
All those methods are backed by your available cash, so when you use one of them, the lender has some confidence in the security of your payment while avoiding the fees from the credit card company.
A quick, but important, digression: Using your credit card likely costs you money, too. When you use it for a car payment, you’re trading one debt (your auto loan) for another (your credit card balance). The likelihood is pretty strong that your credit card debt comes with a higher interest rate than your auto loan does.
The average auto loan interest rate on new cars in 2022 is 4.07%; on used cars, it’s 8.62%. As of mid-November 2022, the average credit card annual percentage rate (APR) was 19.14%. If you’re using a card like that for your payments, your car is going to cost you more in the long term. (You can use this Car Payment Calculator to estimate what different interest rates do the size of your monthly payments.)
Now back to the point: You might run into some resistance from your lender if you try to make a direct car payment with your plastic. But like we said, it’s possible. if you have to use a credit card or are otherwise bound and determined to do it, you can find ways to bypass the lender’s rules. We’ll note some of them in the next section.
Before we do, though, it’s worth your time to make sure you’re familiar with how car loans work, because the one you have might come with some options for paying it off.
How to Make a Car Payment with a Credit Card
Before we start with this, another disclaimer is in order: None of the ways to use a credit card to make your car payment is financially foolproof. All of them quite possibly will cost you more money than you’d pay otherwise.
Nonetheless, here are some of the options:
- A third-party processing company: Some lenders will allow you to use a credit card if you make your payment through a third-party processing company such as BLUEDOG or PaymentCloud. From the lender’s side, a third-party processor can lower the cost of doing business with the credit card companies. But from your side, it can mean significant transaction fees.
- Cash advance: If your lender won’t let you use a credit card directly, this can be a work-around. You get a cash advance against your credit card’s limit by using the card for a withdrawal at an ATM or a bank, and then turn that money into your car payment. But that could cost you a fee from your credit card company and, possibly, a higher-than-normal interest rate, as well as the usual ATM fee.
- A mobile payment system: Technology has made it quick and easy to move money through PayPal, Venmo, Zelle, and other apps. If your lender will accept payment that way, you can use your credit card. If the lender won’t allow it, you could still use the mobile payment system to send the money to a trusted third party such as a family member or friend via a credit card, and ask him or her to give you cash for the payment. A caveat: The key word in that last sentence is “trusted.”
- Money transfer: This, too, is acceptable for some auto loans. If the lender participates, you can use a credit card to funnel your payment through a money transfer service such as Western Union, MoneyGram, or others. The danger here is that your credit card company might consider that sort of transaction to be a cash advance and charge you a fee as well as impose a high interest rate.
By the way, if you’re concerned about the possible wear and tear on your credit cards, you might want to think about leasing rather than buying that next ride. Lease payments generally are substantially lower than payments on a loan for a car purchase. Here is more information: Leasing vs. Buying a Car.
Can You Pay Off Your Car with a Credit Card?
It’s possible to use a credit card to settle the entire balance of what you owe for your automobile. In most cases, it’s done with a balance transfer from one credit card to another.
You’ve no doubt seen ads for credit cards that feature a 0% annual percentage rate (APR) during an introductory period. You probably get a solicitation for one in the mail every other week or so. If the card you’re using is charging you the current average interest rate (remember, it was over 19% late in 2022), that 0% interest on a new card can work for you. Sign up for the new card and transfer the balance of your old credit card over to it.
Assuming the bank or credit union that holds your auto loan allows it (make sure that isn’t too big an assumption; many banks won’t go for it), you can pay it all off with the new 0% card. Voila! You no longer owe the auto lender, you possess the title to your car, and you saved a bunch of money in interest.
All good, right? Well, yeah. For a while.
Technically, you’ve paid off the loan. But don’t forget the 3%-5% balance transfer fee that typically comes with balance transfer cards. Using the example above of borrowing $12,000, that means $360-$600 added to your balance when you get the new card.
And every time you get the monthly bill from the new credit card, the amount of that loan is still staring out at you from its bottom line. You still owe the $12,000, just to a different creditor now. Eventually, that 0% introductory period will end. That might be as long as 21 months from now, might be as soon as six months from now. When it’s over, the interest rate instantly blasts off from 0% into the stratosphere. It can be as high as 27-28%. If you haven’t paid off the balance by then, you’ve undone the advantage you thought you gained using the new credit card.
When that happens, a balance transfer won’t seem like such a simple answer.
There are good ways and not-so-good ways to come into possession of a vehicle. It pays, literally, to be smart about it. Here are some financial tips on how to buy a car.
Should You Make a Car Payment with a Credit Card?
At this point, we’re done with the simple answers because there is no one-size-fits-all response unless your lender won’t allow you to use a credit card at all. (Then the answer really is simple. No!) But if you can make car payments with a credit card, what works for some won’t work for others.
Whether you should consider making a car payment with a credit card depends a lot on your individual financial situation.
For example, if you’re comfortable enough with the state of your finances to know you’ll be able to pay off a 0% balance transfer card before the introductory period expires, then using a new credit card might make sense for you. If you aren’t, it probably doesn’t. The high interest rate you’ll eventually be charged can be a killer.
If you want or need the flexibility of paying more (or less) than the amount of the monthly auto loan payment, a credit card can provide that option. But there might be ramifications to your credit score if you do, thanks to a concept called credit utilization ratio. We’ll get to that in a moment.
And if it looks like you aren’t going to able to make the monthly loan payment any other way, then using a credit card might be your only option. You certainly don’t want to miss payments; those lapses don’t get past the credit bureaus. But don’t forget that when you go the credit-card route and start the high-interest meter running, that piper ultimately will need to be paid.
So, should you or shouldn’t you? Up to you, of course. We’ll elaborate on some of the advantages and disadvantages next.
Pros of Paying a Car Payment with a Credit Card
As we’ve suggested, it isn’t always a bad idea to use your plastic for your car payment when your lender allows it.
Here are some of the ways it can benefit you.
- Potentially lower interest: Especially if you use a card with a 0% introductory APR, you can save some money. Remember, the interest on conventional auto loans average about 4% on new cars and over 8% on used cars these days.
- Credit card rewards: Some cards offer airline miles, cash back, or other kinds of points-based bonuses to sugarcoat their use. If the rewards make up for the fees and interest rate, you might be able to make a case for using your credit card for a car payment.
- Regrouping time: When money is temporarily tight, using a credit card can buy you a month to get your financial affairs in better order before the next car payment is due.
Cons of Paying a Car Payment with a Credit Card
Be careful. Credit cards can be dangerous things when it comes to car payments.
Here is a handful of reasons you might want to stay away from using one to pay for your buggy.
- Potential fees for balance transfers: Maybe we should’ve highlighted this earlier, but that 0% interest rate on a balance transfer card usually isn’t free. The transfer could come with a fee of 3%-5% on the amount you move to the new card. That could undo your savings on the auto loan interest.
- Potential for higher interest rate: Once the 0% introductory period on a new card is over, you’ll be paying a mile-high rate on the card’s balance. And if you use one of your existing cards, it’s a very good bet you’ll be paying a considerably higher rate than the auto loan carries, too.
- Credit score jeopardy: Having too much credit card debt eats away at your credit score. This is where your credit utilization ratio comes into play. It’s the percentage of your total credit that you use. The credit bureaus that determine your credit score look kindly on card holders who use less than 30% of their available credit. When you’re putting sizable car payments on your credit card, that percentage will go up and your credit score consequently will go down.
- Minimal debt reduction: Using a credit card won’t make a significant dent in the amount you owe. Even if you save a little on interest by using a card, you’re just moving the debt from one lender (the bank or credit union) to another (the credit card company).
Options for When You Can’t Afford Your Car Payment
At the end of the day (or this story, whichever comes first), maybe you’re facing this dilemma: You can’t afford your car payment, and you don’t think using a credit card is the right solution. What to do?
It might be time to consider some bigger-picture ways to address the state of your financial circumstances. There are avenues to explore, and one of them could be the means both to keeping your car and clearing up your money trouble.
Among the opportunities to explore are:
- Credit counseling: A session with a certified credit counselor from a nonprofit credit counseling agency is free of charge and will help you sort through all your options.
- Debt consolidation: This is a way to combine credit card debt from multiple cards so that you’re only making one payment, usually at a lower interest rate than you pay on the individual cards.
- Personal loan: The right personal loan comes with an affordable interest rate and a reasonable time frame for repayment. It can help you through short-term woes.
- Debt settlement: In this option, you, or a company you hire negotiates with your creditors to accept a lump sum payment that is less than what you owe in total. It gives you two or three years to save for the payment, but late fees and interest can add a considerable amount to your balance.
When you’re struggling with car payments and/or other bills and think a debt management plan might help, working with a credit counselor at a nonprofit agency such as InCharge Debt Solutions is an important first step.
The answer can be that simple.
About The Author
Michael Knisley writes about managing your personal finances for InCharge Debt Solutions. He was an assistant professor on the faculty at the prestigious University of Missouri School of Journalism and has more than 40 years of experience editing and writing about business, sports and the spectrum of issues affecting consumers and fans. During his career, Michael has won awards from the New York Press Club, the Online News Association, the Military Reporters and Editors Association, the Associated Press Sports Editors and the Sports Emmys.
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