Paying for a Car with a Credit Card

In this piece from Consumer Reports on how to deal with car dealership closures, they make this statement:

Use a credit card. Whether you’re making a down-payment, ordering parts or accessories, or getting repairs or service, use a credit card. If the dealer fails before your vehicle or parts are ready or before you have a chance to complain about shoddy or incomplete work, you can challenge the payment with your card issuer. If you pay with cash, check, or debit card, you’ll likely be out of luck. Just be sure to use a credit card with no balance so that you don’t pay finance charges.

I'm still fascinated (excited?) about the idea of paying at least a portion of a car's purchase price with a credit card. Why? Well, if you're using a 2% cash back card like the new Schwab card, a $20,000 charge for a new car can net you an easy $400. And even if they "only" let you charge $5,000, that's still $100 you can earn for doing nothing, right?

Of course you'll want to pay off the charge right away, but if you've already saved up the money, that's no big deal.

I'm still a couple years away from needing a new car, but I'm certainly going to add this to my tried-and-true method of buying a car using the web.

Now for a question: anyone out there ever pay for their car (or part of it) using a credit card?

Comments

[Matthew Overton]

My father did this back in 1998 or so, in Ontario. He bought a Jeep Cherokee, all on his credit card. He is addicted to points and needless to say, he and my mother flew to Europe on points that summer. A few years later when he went to buy another car, he was turned down flat. They were on to guys like him!

[Evan]

We just bought a 2007 used car from a car dealership last month. The dealer let us put $3,000 on a credit card; the rest we had to pay with a personal check.

[Trent D.]

My grandmother put an entire car (about $25k) on her AMEX a few years back.

You may not be able to net as strong of a discount on the car this way. Since the dealer is charged a significant fee to process the transaction, so they will be less willing to negotiate price since a third party (the credit card company) is taking part of the profits.

[Krazy Eyes]

During negotiations you should always letter the dealer think there's a chance you're going to finance. Then, once the price is agreed upon, decide to pay cash for the car.

About 5-6 years ago I was able to put my entire VW Passat on my Amex. The dealer tried the "only $5,000" trick but when I pressed and hinted that this might be a deal-breaker they quickly relented. I got a ton of points on that one.

[RDS @ Smart Financial Values]

I have seen dealers that will tack on a dollar or percentage fee for using a credit card. If the fee is transparent and consistently applied I have no problem with it. After all, the dealer will lose one or two percent of any sale paid for by credit card. However, even if the fee is not negotiable you can often come out ahead if you have a good reward card.

[Shane]

We used a credit card for the down payment on a car lease. A week later, we get a call from the financing company saying we were rejected for financing! Of course, we had already signed the paperwork and taken the car. But that initial charge for the car was what must have triggered the financing company to reject our credit app after the fact. The CC was paid off at the end of the month, and it all ended well...

tacking on an additional charge for use of a credit card is a violation of their agreement with the credit card companies, I believe.

[Andy]

Just bought a new car. The dealer let me put $2,500 on a credit card - which will result in $31 of cash rebates. Paid cash for the balance of the car.

[karla]

We tried to buy a used pick up (around 5K) with our credit card, but the dealer wouldn't let us due to the transaction charge. This was about 3-4 years ago though. I think if we had tried now and threated to walk away if they wouldn't let us use the card, they might have let us use it.

[JE Gonzalez]

A good pieve of advice is to get yourself a car that is a total wreck, but will start if you are being chased by a knife-wielding serial killer. However, if and when it won't be a huge expense I will get myself a champane coloured Maserati ( whatever the latest model will be in the future)

[Brent]

I'm still kicking myself that I turned down charging part of my new car purchase on my credit card. I had one of those moments where I thought that since I had the money on hand I didn't need to use my credit card. I completely forgot about the 1% cash back on my card. I've been saving up for years for a new television and if I would have charged that car purchase I would have more than enough for a really great set. Oh well, live and learn.

[NCN]

Credit cards... new cars... my head almost exploded as I read this post! :)

Seriously though, I have several friends who have done this... Usually, the dealerships limit the amount to less than 5K, due to the fees they have to pay cc companies....

By the way, I highly recommend using FMF's car buying techniques... (I used them when purchasing my new-to me USED car...)

Rock on,
NCN

[kitty]

Have never done it yet because I simply hadn't known I could. I really wish I had asked. Not only because of the cash back but also because at the time online saving accounts were paying over 5%, so with a 0% on purchases credit card, I'd have made money on bank interest as well. Next time I need a new car, I'll likely try to take advantage of it. Hopefully it will not happen for a while, though. I have a 3 year old car that I had bought new 3 years ago so any purchase of a new car within next 10 years is likely to be "unplanned". Like this car's purchase was when I totalled my previous car - an experience I am not anxious to repeat.

I wonder if AmEx "doubling warranty" feature applies to cars as well. Anybody knows?

[Odnal]

When we bought our used van last year, the dealer let us put either $3k or $5k on a credit card (I forget which). That doesn't make much of a dent in the overall price, but every little bit helps. Also, we have a tiered rewards program, so it pushed us up a full tier or so at the time.

[Money Mentor Online]

Wow. Using a credit card to pay for a car or a portion of a car sounds like an all around bad idea. That might come from my biased hatred for credit cards, but it still doesn't sound like the wisest decision.

Maybe these cash rebates and points are worth it, but I don't think I'll be getting rich off Visa. It's probably the other way around.

[masmas]

My wife and I purchased a used 2007 vehicle earlier this year with a credit card. We were able to put about $9k of the vehicle on an AMEX that we opened for just this reason (0% for one year). We have had no issues with the card and pay the minimum amount each month (<$200/month).

After negotiating a price with the dealership I offered to cover their transaction cost if they allowed me to use the card. The rebates and interest I gain through the balance more than covered this cost. On a side note, another dealer flat-out disallowed credit cards; I have a feeling this was because of the protection the credit card would offer the consumer (probably not a business you want to buy from anyway).

Credit cards aren't bad.... using them improperly is bad.

[Smith]

Bought a new car at the beginning of the month. Dealer allowed us to charge 4500$ down on the Amex. The monthly charges go from personal account.

[Leia]

My husband paid for both our used cars with PayPal on credit cards. He was very happy about the reward points, and the individuals soaked the PayPal fees because it saved them a bunch of hassle. WinWin.

[Leia]

To add to my above post - we paid both cars off within a month. Carrying a balance on a credit card vs. a car loan would be a killer difference in interest, at least for us.

[Cathy @ Chief Family Officer]

NCN, I can see how this post would give you a heart attack, but you're too funny!

FMF, the dealer we bought our new car from earlier this year would only let us put $5K on our credit card (balance paid in full when the statement came, of course). When I wrote about this, a reader commented that it's a violation of the merchant's agreement with Visa to impose a maximum (just like it's a violation to impose a minimum, as many mom and pop stores do).

I've wondered several times since then what would have happened if I'd pressed the issue. We negotiated really hard on that car and I think they barely made any profit off us as it was, so although I think they probably would have caved, I think there's also a decent chance they would have let us walk out the door.

That said, I'll probably make it a deal breaker for our next new car, in about 5 years :)

[crashdamage]

In 1990 My wife and I purchased a new car using a credit card that had a promo of 0 % for 3 months , then at 1.99% for 12 months after that. Like others mentioned above, our dealer limited us to $ 2500 on the card directly, so i used a credit card access check for the balance, which only added a $75 transaction charge. We are die-hard LBYM'ers and try not to spend more than what we actually have, so the money sat in our money market fund, auto-paying the minimum until we paid the debt off in full at the end of the teaser rate period. ( remember those?) Worked out so well we did a similar thing in 1998, and this time got 1% rebate on the deposit that went on the card as a bonus.The balance we paid using the credit card access check which offered 0%for 1 year, again paying the min until the expiration of the teaser rate, then paid it off in full. But alas, in the spring of 2008 when we bought a car to replace the 1990 car ( yes, they really can last if you just change the fluids on schedule;) those teaser rates and low fee access checks deals were not quite as sweet. We lucked out tho, the mfg of the car we wanted offered a 0% for 2 years, with no money down even. First time in my car buying experience that we just drove off in the thing with out having put down so much as one red cent. That car will be paid off on skedule so that we wont pay any finance charges on it either.

As Money Mentor Online noted, financing a car on a credit card can be a bad idea, unless you already have the money parked in the bank anyway. An even if you do, using up more than 50% of a cards available credit could lower your credit score, at least until your balance is brought down below that point. So as MasMas noted,how you use the card determines if its a good plan or a bad one.

[GE Money]

I have just gotten a new car and I used my credit card to pay for it and even though it was my first time using a credit card as means of payment for a new car, it feels good.