Are you thinking about paying your car loan with a credit card to avoid interest or earn cashback? Maybe you’re considering moving your entire loan balance to a credit card. While both options are possible, there are risks and benefits to consider. Understand what makes sense for you.
Can you pay your car payment with a credit card?
You can use a credit card to pay for your car loan if your lender lets you do so. However, many lenders prefer payment methods like debit cards, checks, money orders, or direct transfers from a bank account to avoid credit card fees.
You might have to pay a fee to a third-party service in order to use a credit card to pay your loan. You could also get a cash advance on your credit card to pay for the thing, but this has high fees and interest charges that start right away.
How to pay an auto loan with a credit card?
Generally, paying a loan with a credit card is possible, but it’s often less convenient and can have extra fees. It’s best to pay back your loan from your bank account if you can.
A balance transfer is usually needed when using a credit card to pay off a car loan. This means moving your debt from the loan to a credit card, often to get a lower interest rate. Balance transfers can be helpful, but if you can’t pay off the balance quickly, it can lead to more debt.
Depending on who issued your credit card, you might be able to make a balance transfer. Some, like American Express and Chase, don’t allow it, while others, like Citi and Discover, do. You’ll need to check with your issuer to find out.
Balance transfers can be started over the phone or online. Give the account number, name of the company handling your car loan, and the amount you want to move. Your provider will handle the rest. Balance transfer checks that your card issuer may have sent you are another choice.
Keep in mind that even if your issuer allows balance transfers, you can only transfer up to your credit limit. So, if your limit is $5,000, you can’t transfer a $10,000 car loan balance.
Can you use a credit card to make a down payment on a car?
It’s possible to use a credit card for a down payment on a car, but not always. Many dealerships will only accept cash or checks for a down payment to secure a car loan. However, some dealerships may allow you to put a down payment on a credit card if the amount is relatively small (under $5,000 or so).
Before heading to the dealership, call ahead and ask if they permit credit card down payments and if there’s a maximum limit. Also, ask about any potential fees they may charge for credit card transactions. Putting a large sum like $10,000+ on a credit card is unlikely to be accepted for a down payment.
The Pros of Paying Your Car Loan With a Credit Card
When you can, is it a good idea to pay for your car with a credit card? There are a few potential advantages to consider:
- Earn Rewards: Using a credit card to pay a car loan can give you rewards like points, miles, or cash back, especially if you’re saving up for a big reward like a free flight or hotel stay.
- Introductory 0% APR: Some credit cards offer a 0% APR for the first 12+ months. If you can pay off your car loan during this time, you could save money on interest compared to your auto loan rate.
- Improve Your Credit: Having both credit cards and loans on your credit report can improve your credit mix, which is good for your credit score.
The Cons of Paying an Auto Loan With a Credit Card
However, there are also several potential downsides and risks to using a credit card for car payments that you need to evaluate carefully:
- Fees: Using a third-party service to pay with a credit card often comes with fees, which can cancel out any rewards you earn.
- Cash Advance Rates: If your credit card treats the payment as a cash advance, you could face high fees and interest rates.
- Paying Off the Loan: If you plan to do a balance transfer to a loan with a lower interest rate, you might not be able to transfer the full amount.
- Credit Utilization: Adding a large loan balance to your credit card could temporarily lower your credit score.
- Risk of Missing Payments: If you can’t pay off the balance before the 0% APR period ends, you could face high-interest charges.
It can be risky to use a credit card to pay off a car loan, so it’s important to weigh the pros and cons before making a decision.
Alternative Options to Consider
If you’ve determined that paying your car loan with a credit card isn’t the best choice for your situation, there are some other options to explore:
- Get a Balance Transfer Card: These cards offer a 0% APR for a limited time, which can help you consolidate and pay off higher-interest debts. Transferring your auto loan balance to one of these cards could save you money on interest.
- Refinance Your Auto Loan: If you have decent credit, refinancing your car loan to a lower interest rate could save you money over time without the hassle of using a credit card.
- Take Out a Personal Loan: Depending on the rates and fees, a fixed-rate personal loan could be a cheaper option than your current loan or using a credit card.
- Adjust Your Payments: If you’re struggling to make your current payments, talk to your lender about changing your payment schedule or other options. This is better than missing payments and hurting your credit score.
Should you use your credit card for car payments?
While it’s possible to pay your car payment or make a down payment with a credit card, in some cases, it often comes with high costs and risks. These may not be worth the rewards you could earn.
Unless you have a good reason, like a big sign-up bonus or a long 0% APR period, it’s usually better to avoid paying car loans with credit cards. Think about other options, like refinancing your auto loan.
If you choose to use a credit card for loans or car payments, make sure you know how you’re going to pay it off fast. Missing payments could lead to high-interest charges that outweigh any rewards you earn.