Can You Buy A Car With A Credit Card? Here's What Most Dealerships Allow

Whether you're on the market for brand-new cars that cost less than $20,000 or are hoping to spend a little more for a luxury model with premium features, financing is something everyone has to think about before purchasing a new vehicle. The traditional model for buying a car involves negotiating interest rates at the dealership or getting a loan through your bank or credit union. You also have to decide whether you want to write a check for the down payment or use your current car as a trade-in to cover some or all of the amount. If you have a substantial amount of savings, you might even pay for the car outright.

While that works for a lot of people, others wonder if they can use their credit card to purchase a vehicle. After all, depending on the type of credit card you have, you may be able to earn points, miles, or other rewards when you use it, making it an attractive option for a big purchase like a car. It turns out that some dealerships accept credit cards as payment for part or all of a car's purchase price. However, there are some things you should keep in mind before handing over your credit card to pay for your next car.

We all want to avoid mistakes when buying a car at a dealership and walk out with the best deal possible. Part of that involves doing your homework, especially when it comes to financing options. The question of whether you can use a credit card to buy a car has a simple answer: some dealerships accept them while others don't. One of the most common reasons dealerships are hesitant about accepting credit card payments is they incur a transaction fee of between 1.5% and 3.5% when a customer uses a credit card. As one can imagine, that can be a pretty substantial amount for a car that costs thousands of dollars.

However, all is not lost; many dealerships are willing to let customers put at least part of their downpayment on a credit card. In some very rare cases, you may even find a dealership that'll let you put the entire purchase on your card. Keep in mind if they do agree to let you pay with your credit card, they may pass the transaction fee onto you. In the long run, those credit card rewards may not be enough to balance out the added cost. Every dealership has different rules about using credit cards, so you'll need to shop around if you think using one is something you want to do.

One of the biggest arguments in favor of using a credit card to buy a car is the rewards you can earn on big purchases. Many credit cards offer cash back, miles, or other perks to customers for any purchase, and those can add up quickly when you buy a car. These rewards alone can make purchasing a vehicle with a credit card profitable, as long as you don't have to pay the transaction fee. You'll also want to pay your card off immediately to avoid interest charges that will quickly exceed the value of any reward.

If you don't think you'll be able to pay your credit card in full after using it to pay for a downpayment or part of the purchase price of a car, consider opening a credit card with a 0% introductory APR. These 0% APR offers usually last 12 to 21 months. However, you need to stay on top of things to avoid paying the high interest rates these credit cards often charge once the introductory period expires.

As you think about the questions you want to ask before buying a new car, you should also become familiar with the downsides of paying with a credit card. We've briefly mentioned a couple of the cons of purchasing a vehicle with a credit card — transaction fees and high interest rates — but it's worth taking a closer look at credit card interest rates. As tempting as it can be to buy a car on your credit card, you'll be facing steep interest rates if you don't pay it off immediately or within the 0% APR promotional period.

According to the Federal Reserve, the average interest rate on a credit card is 23.37, which is a lot more than financing a car through a dealership or bank would cost. That's why it doesn't make much sense to purchase a vehicle with a credit card if you can't pay the entire balance by the due date. Paying for a car with a credit card could also hurt your credit score. If you don't pay it off right away, your credit utilization ratio will increase. The major credit bureaus calculate your credit utilization ratio by comparing the amount of credit you're using to your overall credit limit across all of your cards. The higher the ratio is, the lower your credit score.