Can You Buy a Car With a Credit Card in Canada?

‘Can you buy a car with a credit card?’ This was a question our car loan team faced this week. It isn’t one we hear often but seemed interesting enough to make a blog post about it.

So can you?

Yes, you can buy a car with a credit card if the dealership agrees. But more importantly, should you?

Not all dealerships will allow you to pay for the entire car with a credit card. Some will allow a certain amount and then require the rest as cash or a car loan.

Pros of Buying a Car With a Credit Card

If the dealership will accept a credit card payment, there are benefits to doing so:

• Reward Points or Incentives: If your credit card offers reward points, travel points, or other incentives, they can mount up quickly if you buy a car. Just check the small print and see if there is a maximum single purchase amount or cap on those rewards.

• Zero Interest Credit Cards: If you have a 0% deal on purchases, you could theoretically buy a car and not pay a dollar in interest. Just make sure you can pay off the amount before that zero percent period ends!

• Flexibility: If you’re expecting a lump sum bonus, dividend or inheritance, you can get a car now on a credit card while waiting for it to come through.

Cons of Buying a Car With a Credit Card

There are significant downsides to buying a car with a credit card:

• Not Always Accepted: Dealerships have to pay a processing fee for every credit card payment they take. The higher the amount, the higher the fee, so many dealerships won’t accept full payment via credit card.

• High Interest: Credit cards can charge very high-interest rates. If you cannot pay off the amount in time, you could be in for serious interest fees!

• High Credit Limit Required: The average Canadian won’t have a sufficient credit limit to buy a new car outright on a credit card. Part payment may be okay but the full amount may be harder to come by.

Credit Utilization & 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 30-35%. Higher than that can reduce your credit score or cause lenders to look carefully at your finances.

If you have a credit card with a $5,000 limit and $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.

Credit Cards vs Auto Loans

There are only a few situations where it makes sense to buy a car using a credit card. For most of us, an auto loan makes much more sense.

There is less risk of paying high-interest rates, you don’t need a sky-high credit limit, dealerships are always willing to accept auto loans and a loan provides a more predictable monthly outgoing than a credit card.

Plus, the minimum payment on an average car purchase for a credit card could easily be $400-450 per month. Most car loans will be cheaper than that. The only advantage with a card is if you can pay it off early. Otherwise, an auto loan makes much more sense.

So while you can theoretically buy a car with a credit card if the dealership agrees, we don’t think it’s a good idea.

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