Can you buy a car with a credit card?

Key points:

• It’s possible to buy a car with a credit card if the seller and card provider allows it.
• That said, using a credit card could be an expensive and inconvenient way to buy a car.
• Other forms of payment may make more financial sense for you in the long run.

That said, buying a car can be a big financial commitment, and credit card interest rates are often higher than other types of loans. So, it’s a good idea to weigh up the different ways of paying for one, as well as the pros and cons of making this kind of purchase with a credit card, as this could make a big difference to how much the car costs you in the long run.

What are the pros of buying a car with a credit card?

Some potential upsides to buying a car with a credit card can include:

• Pre-approved finance: Unlike applying for a car loan or personal loan, your credit card is a pre-approved line of credit, meaning you are able to spend up to your credit limit without checking with the lender first.
• Low rate and low fee options: You can minimise the interest you pay on a car by using a credit card with a low introductory interest rate. This can mean paying 0% interest or a very low rate for the first few months. Also, it makes sense to compare credit cards to make sure you have chosen the one that best suits your financial and personal needs.
• Rewards points: Another benefit of buying a car with a credit card is that you can potentially earn rewards. And since buying a car is typically a large transaction, you may be able to earn a lot of points in one go by paying for a large purchase with your card.

What are the cons of buying a car with a credit card?

There are several potential disadvantages and risks when it comes to buying a car with a credit card, including:

• High interest rate, fees and charges: Depending on the credit card you apply for and your credit score, you could find yourself in a situation repaying a credit card that has a high interest rate, fees and charges.
• Balance transfer not guaranteed: You shouldn’t expect that you will be able to buy a car using a credit card, then switch to a balance transfer when the introductory period ends on your first credit card. Canstar Research has found that most credit cards limit the amount that can be put onto a balance transfer to a percentage of the card’s approved credit limit and that every time you apply for a balance transfer, the application can show up on your credit report which may negatively affect your credit rating.
• Cash flow: If you were previously using your credit card as a cash flow tool, putting a large purchase like a car on the card may severely restrict your ability to use the card when you need to.
• Missing out on interest-free days: While you are carrying an outstanding balance on your credit card (the car debt), you will not enjoy the usual interest-free days on any other purchases you make using the card.
• Surcharges: You may be required to pay a surcharge if you use certain types of credit cards. However, a limit applies to the amount that can be charged, depending on the type of card or payment method that you use. The business is required to let you know if there is a surcharge payable (before you pay it), according to the Australian Competition and Consumer Commission (ACCC). Contact the ACCC.
• Revert rate: When the introductory period ends on a low rate or balance transfer credit card, the revert rate that applies can be the cash advance rate. This could potentially see you paying a far higher interest rate than you’d pay with a personal loan.
• Budgeting willpower: It’s easy to fall into the trap of only paying the ‘minimum repayment’ for a credit card. Canstar Research has found that credit card minimum repayments usually have both a fixed dollar amount and a percentage amount, and whichever is higher is the one that is applied each month. Sticking to the minimum repayments will tend to drag out the debt, making it harder to repay your car in full before a low introductory interest rate disappears and likely costing you more in the long run.
• Annual fees: Credit cards charge an annual fee. Factor this into your calculations when deciding whether it would be cheaper to buy a car with a credit card, a loan or savings.

How do you buy a car with a credit card?