Maximizing credit card rewards is a longstanding hobby for Veneta Lusk, founder of BecomingLifeSmart.com. She charges everything she can to her rewards credit cards with the aim of earning travel rewards for herself and her husband.
So when Lusk was planning to buy a car, she saw it as an opportunity to rack up some more rewards. But first, she had to figure out if buying a car with a credit card was even possible.
Yes, you can buy a car with a credit card
Like Lusk, you might be wondering: “Can I even buy a car with a credit card?”
The answer is yes, it is possible. Most car buyers can charge a car down payment or part of the purchase to a credit card. Whether and how you can use a credit card to buy a car, however, will come down to what your dealership and credit card issuer will allow.
So don’t expect to simply show up to the dealer and swipe your credit card. To successfully use a credit card to buy a car, you’ll need to do some research and plan ahead. Here’s a look at the process of buying a car with a credit card and how to maximize the benefits of this move.
Check the dealership’s payment policies
Many dealerships refuse to accept credit cards to avoid paying credit card processing fees. Others deal with these fees by limiting credit card charges by a certain amount — typically $5,000 or less.
To know for sure if you can pay for a car with a credit card, call ahead and ask about the dealership’s policies.
It’s up to each dealership to decide whether it will accept credit cards and what limits it places (or doesn’t) on these payments.
Lusk, for example, was hoping to charge the full cost of her car to a credit card. After speaking with her car dealership, she learned that it capped credit card transactions at $5,000. She settled on charging $4,500 of the purchase to a card instead, and paid the remaining $10,000 with a check.
Review your credit card’s terms
Next, check your credit card contract and review the terms and conditions of your account. Some card issuers limit or don’t allow cardholders to buy a car by charging it to their account, according to Experian.
If your credit card allows for car purchases, you still need to watch your account’s credit limits, says Leslie Tayne, a debt attorney and founder of Tayne Law Group. Your credit limit is the maximum amount you can borrow on a credit card account. It’s yet another ceiling to how much of your car purchase you can charge to a credit card.
“Notify your creditor that you will be making a large purchase to mitigate the risk of card denial,” Tayne also advises. Without the heads up, your credit card company might flag this large transaction as potential fraud and freeze your account or otherwise complicate the process.
Pay off the credit card balance right away
It’s wise to limit your credit card charges to an amount you know you can repay. Paying off your entire credit card statement balance by the due date will help you avoid those interest charges.
“Only charge a portion of your car purchase on a credit card if you can pay it off the following month,” says Lusk.
She immediately paid off her $4,500 credit card balance in cash.
But if you can’t do the same, she advises against using a credit card for a car purchase. You’ll likely pay less if you finance a car with an auto loan instead of a credit card.
Indeed, the average interest rate for 5-year car loans was 5.36% in November 2018, according to Federal Reserve data on outstanding consumer credit. At that time the average interest rate on credit cards was 14.73%, more than nine percentage points higher.
Choose the right credit card to maximize rewards
A large credit card charge that you know you’ll pay off in cash, such as a car down payment, can be a chance to score more lucrative welcome bonuses. That’s because new cardholders often have to meet steep minimum spending requirements to qualify for a welcome bonus.
The Chase Sapphire Preferred Card, for example, offers 60,000 in bonus points (a value of $750) for spending $4,000 on this card in the first three months. The Capital One Savor Rewards Card offers a similar bonus of $500 cash back for spending $3,000 in the first three months after opening the card.
The U.S. Bank Cash+™ Visa Signature® Card offers the ability to earn up to $550 cash back in the first year with $150 bonus after spending $500 in the first 90 days, plus 5% cash back on your first $2,000 in combined eligible net purchases ($100 per quarter) on two categories you choose.
If you’re planning an upcoming car purchase, it’s worth investigating auto rewards cards. These auto manufacturer-branded credit cards offer solid rewards that can be applied to a future purchase of a car. One such card is the GM BuyPower Card, which offers 5% cash back on the first $5,000 in annual credit card purchases. This credit can then be applied to the future purchase or lease of a GM vehicle.
Lusk wishes she’d opened a new credit card for her car purchase to rack up more rewards. Even charging part of her car purchase to her highest-rewards credit card, she estimates she still earned just under $60 in travel rewards.
By planning ahead, you can shop around and compare credit cards to find the most enticing rewards or sign-up bonuses. You can also ensure you have the cash on hand to pay off a credit card balance and avoid paying interest. Walletjoy is here to provide you with advice, tools and tips so you can make smart decisions for whatever big purchase decisions you are facing, as well as provide great product recommendations for everyday purchases. Click here to read even more information on additional reviews and recommendations from the WalletJoy team.