Charging a Car on a Credit Card

In the past, we talked about the issues of charging a car purchase on a credit card in order to get a good amount of cash rewards back. Bankrate has recently reiterated what many of the commenters said on that post -- the dealership may let you charge some of a car purchase -- but probably not all of it:

The dealer pays the credit card company as much as 2 percent of the transaction, so that's another 2 percent out of the dealer's pocket. Most dealers will let you put part of the car's price -- usually capped at $5,000 or less -- on a credit card and then pay the remainder in cash or by financing.

Personally, I'd love to charge a car on my credit card to maximize my rewards, but I'm wondering: would I be able to negotiate a better price if I didn't pay by credit card? (Surely the dealer would have a higher price if he knew he'd have to pay 2% on card fees.) Or maybe the process is to negotiate the best price possible, then ask to pay with a credit card. When they balk, maybe I could negotiate even a better price.

Has anyone done this? Do you think it's ethical? (to agree to one price and then try and negotiate a lower one)

Comments

[dwr]

Why isn't it ethical on your end? You agree to the purchase price, then you whip out the plastic to pay for it, and the dealer is the one who backs out, not you.

[savvy]

I agree with DWR. We purchased a car last year and negotiated the price first. Then they asked how we wanted to make our down payment. We told them credit card but unfortunately they would only allow us to charge $5000.

[Angie]

I only wish I had thought of this when I bought my car. At that time I had a card with an intro rewards of 5% on everything and no limit!

[Chief Family Officer]

We bought a new car a couple of months ago. Like Savvy, I was only permitted to put $5000 on my credit card. One of my commenters mentioned that such a limit actually violates the terms of the dealership's agreement with the card issuer. Apparently just as a merchant can't require a minimum purchase, it can't impose a maximum either, although I haven't researched the issue since it was too late for us.

I don't see why it would be unethical to use it as a negotiating tool. You're not hiding anything.

[John Z]

My last two auto purchases were limited to $1000 on a credit card for the deposit.

Any thoughts or experiences with dealers giving you a better deal if you take financing? They must get some commission from the financing company for selling the loan, right? And if there's no prepayment penalty then what's to stop you from initiating the financing and then paying off the whole balance in the first couple months?

[MonkeyMonk]

Even better. Ask a lot of questions about financing while you're negotiating the price then when it comes time to pay whip out the plastic. I'd be curious what a dealerships response would be to someone who claims the $5,000 cap is deal-breaker and that they're ready to walk away from the whole deal over it. I'd suspect you would be able to shave a few more $$$s off the price.

In my experience, nothing gets a dealer's attention better than just walking out the door. If you're not in a rush wait a week or so before getting back in touch with them. I wouldn't worry about the dealers. They're not going to sell you the car for a loss. They've got lot's of hidden incentives still making them money.

[Trent D.]

I don't think it's unethical to ask to pay with a Credit Card. CC is a reasonably valid form of payment. It's not the customer's concern that fees will be assessed to the dealer, unless those fees are going to be added to the car's price. Some consumers aren't even aware that per-transaction credit card fees exist.

My grandmother charged an entire car to her card once - it was a 1 year old used vehicle, and the total was around $30,000. They called, confirmed her credit line could take it, and ran the charge. However, she probably got upcharged to cover the transaction costs.

Obviously if the dealer is willing to give up 1-5% (depending on their particular fee level) without blinking an eye, they're making way too much money off you and you didn't do a good enough job negotiating!

[Outdoorgrrl]

I've watched my dad do this many times. He negotiates the price then whips out the plastic to pay for the whole thing. (Actually, I think he takes great pleasure in dinging them another 2% or so.) The dealer always balks and says he can't do it at all. At which point, he says thank you for their time and walks out. They either stop him on the way out or call him in day or two to finalize the sale. He's never had a problem.

And no, it's not unethical. If a dealer doesn't want the sale, they don't have to accept the card. It's their problem, not the consumer's problem.

[Curt]

My father has also done this many times, back when his credit card interest rate was lower then he could get a car loan from the bank.

I think its a great idea if it saves your money. Another way is to open a new card and do a balance transfer at 0% for 12-16 month, then right a check for the car with the money and enjoy your 0% interest loan.

[CommRE]

I bought a used car in January and paid just over $30K with my credit card. I called the credit card company ahead of time to let them know. The dealer did not know that I was planning on paying by CC until we finalized the deal. I was prepared to pay cash if need be, but he didn't blink an eye and they took the card.

That is an interesting point about maybe you didn't get a very good deal if the dealer is willing to take a credit card. Think about this - If they truly were taking you to the cleaners over an inflated price, what incentive would they have to gladly give up X percentage to the credit card? Seems to me they have this huge profit locked in and they will protect that the same way they protected it in the negotiations.

Of course no one will ever say they got taken by a dealer, but I feel I got a fair price, and I got the points on my card.

[Financial Goal]

I tried to use my credit card to pay for the car I had purchased as well. The finance guy told me that all they can do is $5000.00 on a credit card, it was their policy. It was too bad because I would have enjoyed the points I would have received with this one purchase.

[Todd]

Agree with most of the folks here. There's nothing unethical about negotiating the best possible deal and then re-negotiating if they balk when you try to pay with plastic.

My practice, when buying a car, is always to negotiate the best price I can get before even discussing how I'm going to pay for it. I want them to think that maybe they will be able to make some money off financing before I let them know I'm going to pay in cash. If they ask how I'm going to pay, I tell them I want to settle on the price first and then I'll address the means of payment. So far, I haven't had any problems with this approach. I've never paid with a credit card, but will probably do so at some point in the future (if they let me).

[James]

I have tried this before and they wouldn't do it. We negotiated the price and the I whipped out the plastic and they said hell no. I think I negotiated a little lower, but not even the 1% I would have gotten from the card.

Here's my less ethical idea (I don't give a f*ck about ethics, at least with banks. It's hardball all the way. Anything legal is ethical with them.):
When you go to finance the car, the car dealer makes a lot of money on financing from loan origination fees from the banks. I think the worse the interest rate, the more money they get. So the key is to make a win-win situation. For that we need a really really high interest rate with no prepayment penalty that gets the dealer a nice origination fee. Then we agree to take the sh*t financing and the dealer gives us a nice discount on the car. Then we pay 30% interest for a day or whatever the minimum amount of time is before we simply pay off the whole loan. It's just a matter of running the numbers and knowing the rules, and the bank gets left holding the bag. If anyone has ever tried this I'd love to know about it. I intend to at least ask about it next time I buy a car.

[Michael]

If the car dealership refuses your credit, ask for them to call the credit card company. If they refuse a transaction, the credit card company will remove their ability to take any credit cards at all! The dealer will be screwed!

Or, just make the deal and the transfer the entire balance to your card.

On caveat is that the car company isnt going to jack up your rate if you miss a payment. You have to have the discipline to pay off the credit card and not miss a payment... ever!

However, you will be able to spread out the credit card payments over a longer time. So, you can pay your car off over 10 years if you so desire. Just make sure that you don't go upside down on your loan!

A credit card can be a great option, but it isn't for everyone. Be very careful and knowledgeable in your decision.

Also, make sure you use a credit card that has cash back rewards or frequent flyer miles... 25,000 dollars with 2% back = 500 free dollars!

[Adam]

A few months ago I paid for a car entirely with a credit card for the cash back and for the low interest rate on my credit card (3.99% - definitely better than any of the financing options). The car cost about $15,000, so I made about $150 in cash back. I didn't see any ethical issue with paying that way since the car dealership otherwise wouldn't have made the sale, but specifically because credit card is a completely valid form of payment. More importantly, car dealerships make a good chunk of their profits through financing and extending credit, so why not turn the tables a little bit? You're doing exactly what they're doing, but you win at their game.

[Adam @ LetsSaveSomeMoney.com]

A few months ago I paid for a car entirely with a credit card for the cash back and for the low interest rate on my credit card (3.99% - definitely better than any of the financing options). The car cost about $15,000, so I made about $150 in cash back. I didn't see any ethical issue with paying that way since the car dealership otherwise wouldn't have made the sale, but specifically because credit card is a completely valid form of payment. More importantly, car dealerships make a good chunk of their profits through financing and extending credit, so why not turn the tables a little bit? You're doing exactly what they're doing, but you win at their game.

[Brian]

The gentleman who spoke about credit card agreement is correct. When any company engages in an agreement to accept credit cards as a form of payment they surrender their right to control the amount(provided the credit is available to the user), hence they are in violation of their agreement with the CC company. This can cause their privledge to be revoked (possible but not likely in my opinion)as you would (probably in advance)have to have someone from CC company that had the power and the willingness to go to bat for you when the time arrives (purchase time), that would essentially make that person on call, which someone with that kind of stroke is very unlikely to happen. The bigger issue though is the second one and that is, unless you are a Donald Trump type (unlikely if you are engaging in this as it wouldn't be worth their time for a free flight)the money that car company brings in to the CC company in one month (assumed penalty for violating their agreement) far and away is going to trump your yearly purchases and the money you generate for them. One thing I do know about people and companies compensation dictates behavior every time. The CC company essentially has a conflict of interest and they aren't going to side with you because they know who butters their bread more. So without that as a consequence they will get away with the limitation.