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Purchasing a car is a big commitment that comes with an even bigger price tag.
Depending on the car dealer and the cost of the car itself, you may be able to pay for this big-ticket purchase by simply swiping your credit card. But think twice before going full speed ahead.
Below, CNBC Select takes a look at what you should consider before buying a car with a credit card.
Like all merchants that accept credit cards, car dealerships have to pay processing fees for every card transaction, so they have their own rules about whether or not you can pay using credit. Some may only allow you to charge a portion of the down payment, while others could allow you to fund the entire car cost on a credit card. If you are thinking about using your credit card, first negotiate the car price before telling the dealer your method of payment.
A big factor when buying a car on a credit card is your credit limit. Unless you have a card that offers a high credit limit, like the Chase Sapphire Reserve®, you probably won't be able to fund the full price of a car via credit card.
On the other hand, your card may come with a program especially for car-buying. Cardholders of The Platinum Card® from American Express (another high credit limit card), or any other type of Amex members, can try using the American Express Auto Purchasing Program, which connects you to dealers who accept American Express and let you charge $2,000 or more toward a car purchase on your Amex card.
If your credit limit is too low to buy a car, you could take steps in the meantime to build a stronger credit and increase it over time. You can also consider a traditional auto loan.
You might feel the temptation to buy your car with a rewards credit card so you can cash in on a big welcome bonus. But unless you have enough cash to pay your balance in full immediately after charging the car onto your credit card, you'll want to use a 0% purchase APR card instead. Cards with zero-interest financing give you time to pay off a new car without incurring additional charges.
The U.S. Bank Visa® Platinum Card is one of the best low interest cards with 0% introductory APR for the first 20 billing cycles on balance transfers and new purchases (then 13.99% to 23.99% variable APR). With a card like the Chase Freedom Unlimited®, you get no interest on new purchases over the course of 15 months (then 14.99% to 23.74% variable APR).
To take full advantage of these savings over a year, we recommend that you make sure you can pay off the full balance of your new vehicle purchase before the 0% introductory period ends.
If you have the cash to buy your car in full, but want to take advantage of a cash-back or travel rewards bonus, using a top rewards card to buy your vehicle is certainly an option.
You could get instant cash back with a card like the Alliant Cashback Visa® Signature Credit Card with its industry-leading 2.5% cash back on all purchases (up to $250 in cash back rewards per billing cycle).
Or easily hit the spending threshold to redeem rewards by using the Chase Sapphire Preferred®. The card has a large 80,000-point bonus offer at sign-up after you spend $4,000 on purchases in the first three months. Plus earn up to $50 in statement credits towards grocery store purchases.
New cardmembers of the Delta SkyMiles® Platinum American Express Card earn 90,000 bonus miles after spending $3,000 in purchases on their new card in the first three months (offer expires 4/28/2021).
For Hilton loyalists, a car purchase can quickly bring you to better rewards. The Hilton Honors American Express Aspire Card offers Hilton Honors Diamond status and a complimentary weekend night when you spend $60,000 on eligible purchases in a calendar year.
If you're in the market for a new car, consider the payment options your dealership offers; if they don't offer what you want, take the time to shop around. The decision to charge a new car purchase depends largely on whether or not you can pay the credit card balance off immediately, or if you have a plan to do so without earning interest. Granted you do, you can really reap a lot more value than just a new set of wheels.
Information about the Hilton Honors Aspire Card, Alliant Cashback Visa® Signature Credit Card, and U.S. Bank Visa® Platinum Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
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