Can I Buy a Car with a Credit Card in Caledonia?

Can I Buy a Car with a Credit Card in Caledonia?

Posted on July 2, 2021

We buy most things with credit cards these days thanks to online shopping and insurance offered by some credit card companies. We even recommend using a credit card to help rebuild credit. But can you buy a car with a credit card?

We asked our Caledonia auto loans team to ask around our dealerships to find out.

Can you Buy a Car with a Credit Card at a Dealership?

Dealership will gladly accept credit cards to pay for parts, accessories and servicing but not for paying for an entire car.

They may accept a credit card for a down payment though.

Credit card companies charge a fee to every business who accepts them. Fees vary between 1-5% depending on the card. Those fees are manageable on smaller purchases because they are built into the price.

If we split the difference at a 3% fee, that would be $900 on a $30,000 car. That’s not something a dealership could absorb. We would have to add that on to the price and nobody wants that!

Using a credit card for buying cars

Even if you could find a dealership who would accept a credit card as full payment, we’re not sure it’s a good idea anyway.

Not many of us will have a large enough credit limit to buy a car. Credit card interest rates are notoriously expensive too.

We could feasibly use a credit card as a down payment as many of us would have enough credit limit. But that could max out your card.

It’s also a very expensive way to borrow money. If the average credit card interest rate in 20% on purchases, that’s going to become a very expensive way to make a down payment.

There’s also credit utilization to consider.

Credit utilization and credit cards

Credit utilization forms part of your credit score and calculates the amount of revolving credit you have available against what you’re using. Revolving credit mainly refers to credit cards where you can pay and borrow as and when you like.

The ‘golden ratio’ of credit utilization is between 30-35%. Higher than that can reduce your credit score or cause lenders to look very carefully at your finances.

If you have a credit card with a $5,000 limit and you have $500 outstanding, your credit utilization is 10%, because you’re using 10% of the credit you have available.

If you put a down payment on a car, you would max out that credit limit, perhaps using 100% of your credit utilization. That’s a big red flag to any future lender and will impact your credit score.

Use the right tool for the job

Credit cards are great for day to day use and smaller purchases. When it comes to big ticket items like cars, you’re much better off using a car loan. It’s the right tool for the job and comes at much lower rates than a credit card!

A car loan won’t impact your credit score anywhere near much either!

When you’re ready for a car lease or loan, get in touch with the Caledonia auto loan experts at Northway Ford for great deals on auto finance.

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