We at Wallet Weekly love our rewards credit cards as they give us something back on every dollar spent. So we tend to use them to buy just about anything, even for making big purchases.
Speaking of which, the other day we were asked by one of our readers should he use his credit card to buy a car. Our quick answer was/is yes, but… It it more complicated than that and it all depends on your unique situation… As we’re going to explain in today’s article. Read on for details.
Is it even possible to buy a car with a credit card?
An important thing to realize is that not every dealership will accept credit cards; like any other merchant, they have to pay 1 or 2 percent for processing those transaction, and in their case that 2% is a few hundred bucks. Unsurprisingly, they don’t like it.
But they do want new business, so some of them may be willing to let you pay a portion of the car with your credit card. If such option exists, and it makes “financial sense” for you (you can pay if off quickly) — go for it. This, of course, presumes you have enough money in the bank to cover the majority of the purchase with little to no balance to carry from one month to the other.
With that in mind, there are two ways to do this:
1. Save on interest with a card offering 0% APR
No credit card will give you 0% interest forever, but there are some offering an introductory period of interest-free financing. If you can pay off the car during this (introductory) period, you’re good to go; otherwise, you’ll experience on your skin how 0% turns into 20%, making the car purchase that much more expensive. Similarly, or even better if you can pull it off, you can…
2. Use a rewards credit card for your car purchase
The situation is more complicated here, as it requires that you have enough money to payoff the purchase at the end of the month. Otherwise, the interest you will pay on balance to be carried to the next month will “eat” any benefits you would get from points or cash-back rewards.
In other words, using a rewards credit card to pay for your cars is similar to buying the vehicle with cash — you have about a month to come up with the money to benefit from rewards.
A few tips for buying a car with a credit card
The common sense advice meets a credit card customer:
1. Don’t mention the payment method (credit card) until you’ve negotiated the price
First thing first. You’ll want to come to the price that you can actually afford — or are willing to pay — and only then discuss the payment method. Don’t let that (payment method) be a lever in the salesman’s toolkit. Get the best deal possible first, and only then mention that you prefer to pay with your credit card.
3. Do the math
If you can’t pay off the purchase at the end of the month, or at the end of the introductory 0% APR period, you will have to do the math by adding interest payments to the mix. At the end of this exercise, you may decide NOT to pay with your credit card but to use the dealership’s financing option or go for a regular bank loan.
3. If you can, go for rewards
If you have enough cash at hand, you should use your rewards credit card by all means. Say it offers 2% rewards, a car costing $20,000 will get you an equivalent of $400. And if we’re talking about rewards you can mix and match, you can easily make those points worth much more when you convert them to airline miles or hotel points. For what it matters, that’s how we roll.
Hopefully, you can use some of the advice outlined in this article, and hopefully it will help you make what is typically a daunting purchase (negotiating with car salespeople) something more enjoyable. After all, this could be a savings game or the one with travel rewards at the end. Good luck!