If you're in the market for a new or used vehicle, you'll need money for a down payment, which is a portion of the car's total cost that you pay upfront.
Down payments can be made with a personal check, cashier's check, or physical cash, and some dealerships also allow credit card payments.
But just because you can use a credit card for a down payment doesn't mean you should. In this article, we'll explain the pros and cons of making a down payment with your credit card.
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Financial Risks of Using Your Credit Card to Make a Down Payment
More and more car dealerships are accepting credit card payments. However, using a credit card to fund a vehicle purchase is generally not a good idea due to the potential risks. Here are a few reasons why you should think twice before using your credit card for a car down payment.
You'll Pay Higher Credit Card Interest Rates
When you use a credit card to make a purchase, you pay interest on your balance. If your credit score is over 670, you can expect to pay between 20% and 22% interest rates on your credit card.
With that in mind, you should only make a car down payment with a credit card if you can pay off your entire account balance before the next due date. If you can't afford to pay the balance in full, using your credit card for a down payment might not be the best option.
You Could Lose Negotiation Power
When you use a credit card to buy a car, the dealership might not be willing to negotiate the price. Dealerships pay credit card transaction fees when customers buy a car with their credit card, which is money that comes out of the dealer's pocket.
To avoid this, consider negotiating with the dealer before you tell them you're paying with a credit card so you can work on getting the best deal. Once you and the finance manager settle on a price, you can decide if using your credit card for the down payment is worth it.
Your Credit Score Could Take a Hit
Before you swipe your credit card at the car dealership, find out how much available credit you have. Using your credit card for a down payment could put you over the recommended 30% credit utilization limit.
If that happens, you can expect your credit score to take a hit. And if you max out your card completely, there could be other penalties, as well.
Benefits of Credit Card Down Payments
In general, experts don't recommend using a credit card for a down payment. It's only worth considering this option if you'll earn credit card rewards or some other benefit from your credit card issuer. Some benefits may be worth the financial risks, such as:
Low Introductory Interest Rates
Depending on which company's credit card you have, you could open a new account with a 0% interest rate as an introductory offer. That's an attractive way to finance your down payment and spread the cost out over the APR period.
Still, financing the down payment portion of your purchase with a credit card could be costly if you miss the deadline and the promotional term expires with a balance you still have to pay.
Rewards and Cash Rebates
Another reason to reach for your bank card instead of your checkbook to make a down payment is the ability to accumulate points. With this large of a purchase, there's big potential to rack up significant rewards.
And if you can redeem the points for cash back, it could help fund your new car purchase. Talk to your credit card company to see what types of points or rewards you can earn if you use your credit card for a car down payment.
Other Ways to Make Your Down Payment
There are lots of ways to make a down payment that doesn't involve using your credit card. Here are some safer ways to put money down on a new car.
- Trade in your vehicle: If you want to get a new car, consider trading in your old one. Even if your old car is only worth a few hundred bucks, every dollar counts.
- Research manufacturer Incentives: Check online for seasonal offers, coupons, and rebates like Ford's military recognition program, which could help you get a low or $0 down payment.
- Use a money order or electronic funds transfer (ETF): Because most dealerships won't accept a large down payment in physical cash, consider using a money order to certify the funds or have your bank transfer them electronically.
While you can make a car down payment with a credit card, there are some potential risks. It may be a good strategy if you have the cash on hand and the rewards points are worth it. However, if you're not sure you can pay off your bill before the next month's cycle, consider some of the alternatives we mention for peace of mind.
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
FAQs
It's possible to make a down payment on a car with a credit card, though usually only when buying a car from a dealer. Purchasing a car from a private party will likely require cash, check or electronic transfer from a bank or other financial institution.
Can you use a credit card to put money down on a car? ›
Putting a car down payment on a credit card is an option that many dealers are open to. Dealers may be more willing to allow this type of payment for the total amount, or a partial amount, of your car's down payment.
How much will car dealers let you put on credit card? ›
How much can you put on a credit card when buying a car? Many dealers limit credit card transactions to a range of $5,000 to $10,000. However, some don't take credit cards at all, whereas others are willing to charge as much as your credit limit allows.
Can I make a car payment with a credit card? ›
If your car loan lender allows it, you can make a car payment with a credit card. However, credit card purchases impose fees on the merchant, so many loan servicers accept only cash-backed payment methods, like a debit card, check, money order or a direct transfer from a checking or savings account.
Does credit card debt matter when buying a car? ›
Your credit card debt can impact your ability to get a car loan, especially if you're carrying a lot of it. If your debt levels are too high compared to your income, a lender might even reject your application outright.
What's a good down payment on a 30k car? ›
Consider putting at least $6,000 down on a $30,000 car if you're buying it new or at least $3,000 if you're buying it used. This follows the guidelines of a 20% down payment for a new car or a 10% down payment for a used car.
Is it wise to use a credit card to pay off a car loan? ›
Generally, no. Credit cards nearly always have a higher interest rate than car loans.
Do car dealers accept credit cards for payment? ›
Some car dealerships may accept a credit card payment for some or all of a car's asking price, but many will not. And even if they do, you may be asked to pay a convenience fee between 1.5% and 3.5%, which can add to your total costs.
What credit card has $5000 limit with bad credit? ›
The U.S. Bank Altitude Go Visa Secured Card is the best option if you have limited/poor credit and are looking for a high credit limit. You can deposit anywhere from $300 to $5,000, making your maximum credit limit available $5,000.
Can I use my American Express for a down payment on a car? ›
Each participating Certified Dealer in the American Express Auto Purchasing Program will accept the American Express Card for at least $2,000 and up to the full purchase price.
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.
What kind of bills can you pay with a credit card? ›
The short answer is, entertainment and nonessentials can usually be paid with a credit card with no fees. Services, utilities, and taxes can often be paid with a credit card but with a processing fee. Loan payments are usually check or bank withdrawal payments only.
Does Toyota accept credit card down payments? ›
How to Make a Down Payment. If you plan to visit the dealership with the intention to buy, then have a form of payment method ready. Dealerships accept cash, cashier's checks, and debit cards. Most dealerships also accept credit card payments.
Is it smart to put car down payment on credit card? ›
Using credit cards to pay for all or part of a down payment is possible but remains risky if you're not sure you can pay everything off by the end of the billing cycle. In short, don't do it unless the rewards, points or miles earned are worth the risk and you have the cash on hand to pull it off.
Why shouldn't you put down payment on a car? ›
“If the loan will be affordable every month with a three- to five-year term and a fair interest rate, you can skip the down payment,” said Cait Howerton, a CFP based in Atlanta. “However, putting money down will reduce the total amount borrowed, the monthly payment and the interest paid over time.”
Can car dealerships see how much debt you have? ›
Aside from your usual information, car dealerships will also obtain information such as any previous loan defaults or repossession, late payments, signs of bankruptcy, and history of credit repair. This information will help your dealership decide how to approach your car financing application.
Can you put a down payment on a car with a credit card at CarMax? ›
Credit cards cannot be used to purchase a car at CarMax, and we don't accept credit cards for down payments.
Is $2000 a good down payment on a car? ›
If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
Can I use my credit card at a car dealership? ›
Some car dealerships may accept a credit card payment for some or all of a car's asking price, but many will not. And even if they do, you may be asked to pay a convenience fee between 1.5% and 3.5%, which can add to your total costs.
Can I use a credit card for a down payment on a house? ›
Although it may be possible to buy an inexpensive house with a credit card, you won't be able to do the same with a down payment on a mortgage loan. That's because the primary purpose behind a down payment is to demonstrate your investment in the home to your lender.
