We sometimes get asked whether you can buy a car with a credit card. As with most credit questions, it depends.
The answer is that it depends more on your credit card provider and the car dealership, than it does on the credit reporting company or your credit scores. There may be limitations from one or both of these service providers on how much you will be allowed charge. Even if you are able to make the entire purchase on your credit card, doing so may result in having to pay much more in interest fees and could have a negative impact on your utilization rate.
Credit Card Limitations for Charging a Car
Your credit card provider may limit your ability to purchase a car using your credit card or may prohibit it. Check your contract or contact the credit card company directly to be sure you understand their limitations and your contract.
Dealership Limitations for Credit Card Use
Often, dealerships may have policies in place regarding how much you can charge on your credit card, as well. Because they have to pay a transaction fee, allowing you to charge the entire price of a vehicle could mean they stand to lose money on the deal. However, you may still be able to use your credit card to pay for the down payment.
Be sure to consult with the dealership to find out what they will allow before determining the best way to finance your purchase.
Credit Impact of a Large Purchase on a Credit Card
In general, it’s probably not a good idea to finance the entire purchase price of a car with a credit card. The average interest rates on credit card purchases are typically higher than the average interest rates on auto loans, so charging the entire purchase on a credit card would likely cost you more than an auto loan. If you can pay the balance off immediately, it may make sense to use your credit card, especially if your card offers points or other rewards on purchases. But if you are planning to pay the debt off over period of several years, you will probably end up paying much more in interest fees by putting the amount on a credit card.
Another thing to consider is impact on your utilization rate, or balance-to-limit ratio. The higher your credit card balance, the higher your utilization rate, which could have a negative effect on your credit scores until the balance is paid down.
Thanks for asking,
The “Ask Experian” Team