Can You Buy a Car with a Credit Card for Rewards?

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Even with poor credit.

By

Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


, Contributing Writer - January 19, 2017

Buying a car with a credit card can be tricky. Even if a spending limit is high enough to support such a large purchase, many dealers impose a limit on how much of the car's price can be paid with plastic, because they're charged a merchant's fee on every credit card transaction. This fee ranges from one to three percent of the transaction amount, and it can really eat into a dealer's already slim profit margin.

Why it's Difficult to Buy a Car with a Credit Card for Rewards

Dealer restrictions aside, there's really only one scenario where it would make sense to purchase a car with a credit card:

  • The buyer has excellent credit, so they have a credit card with a high enough spending limit to cover the cost of a vehicle.
  • Cash is available to pay for the car outright, but rewards will be earned if a credit card is used.
  • If 100 percent of the cash isn't available right away, the buyer has access to a credit card that charges zero percent interest.

Picture this. Someone walks into a dealership with a Super-Platinum credit card that has a $50,000 limit and picks out a car that costs $35,000. But the salesperson, who was originally all smiles and handshakes, suddenly seems less enthusiastic when the buyer pulls out the plastic.

The dealership politely tells the customer it has a strict policy about credit cards, and that transactions can't exceed $5,000. So the buyer just shrugs and asks the salesperson to run seven $5,000 transactions. No big deal.

But it is a big deal for the dealership. Some credit card companies charge merchants as much as four percent in transaction fees, which means the dealer might have to pay $1,400 in order to sell a $35,000 car.

That doesn’t sound too bad, but dealers make, on average, six percent gross profit on a typical car sale. On a $35,000 vehicle, this only comes out to $2,100 before costs and commissions are taken out. After doing the math, it's easy to understand why dealerships put limits on credit card use.

Car Dealerships and the Credit Card Dilemma

Can the dealership kick merchant fees back to customers? Technically, they could, but they normally don't. In 2013, the courts ruled in favor of retailers, and it became legal (in 41 states) to tack merchant's fees on to credit card purchases. However, retailers must meet certain conditions:

  • It must be clearly posted in the store that fees will be charged for credit card purchases.
  • The charge to the customer may not exceed the merchant’s fee, meaning, the retailer is not permitted to make a profit.
  • The sales receipt must show exactly how much extra the customer was charged.

Because most dealers will allow customers to charge up to $5,000 on a car purchase, they're probably not going to post signage about imposing a fee. Even if a buyer is only allowed to put $5,000 on a card and claim rewards on this amount, that's still a fairly decent deal. However, if this consumer knew that they would end up paying four percent of $5,000 ($200) in order to earn 1.5 to two percent ($75-$100), they would take their business elsewhere.

To sum up, it's possible to buy a car with a credit card, but only at a dealership that's willing to process the transaction. And if such a dealer is located, the purchase will only make sense if there is cash on hand to pay it off right away or the card charges zero percent APR. Otherwise, if the buyer intends to gradually pay off the balance, they would probably get a better interest rate with an auto loan.

Buying a Car with Bad Credit

With bad credit, it's unlikely that buying a car with a credit card in order to earn rewards will even be an option. Unfortunately, credit cards with exceptionally high spending limits and zero percent APRs are only available to consumers with excellent credit scores.

But less than perfect credit doesn't have to remain damaged forever. With time, effort, and the right strategy, consumers can fix bad credit. In fact, one of the best ways to get a jump on credit repair is with a bad credit auto loan.

After getting approved for a loan that will allow the purchase of an affordable car, buyers with credit issues will have an opportunity to gradually increase their credit rating just by making timely payments. And believe it or not, getting approved for car financing with bad credit doesn't have to be hard.

At CarsDirect, we understand that good people don't always have great credit. This is why, for over 20 years, we've been helping credit-challenged car buyers get auto loan approval. We can match you with a dealership in your area that can work with your situation, quickly and easily.

Signing up for our no-cost, obligation-free service only takes a minute. So go ahead and fill out our simple 1-Step Auto Loan Request to get started today.

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, Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


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