How to Use a Credit Card for a Down Payment on a Car

Using a credit card to make a down payment on a car may seem convenient, but it's only a wise idea if you're able to pay the balance off quickly. Some dealers also limit the amount you can charge to your card, so ask first before whipping out the plastic.

Benefits of Using a Card

If you get special perks from your credit card company and can pay your balance off fast, using a card for a major expenditure can earn you bonus points, miles or cash back rewards. The key is in making sure the balance is indeed paid off quickly. Auto interest rates typically are lower than credit card rates, so financing a down payment can be costly. According to Bankrate, the average credit card interest rate as of this publication was 13 to 16 percent, while the typical auto loan was 4.3 to 5.2 percent.

Contact Your Credit Card Company

Call your credit card company to make sure you have enough of a credit line to cover the down payment. If you don't, ask for an extension of your credit line to cover that amount. Also check to make sure you don't have a low introductory interest rate that's about to expire. Making a major purchase right before an interest rate change can cost you big bucks.

How to Make the Payment

Tell the dealership you're planning to use your credit card for the down payment and double-check the max amount it will let you charge. Car dealers sometimes limit the amount they'll let you put on a card because they're assessed a finance fee by the card issuer, which can cut into their profit margins. There night be some wiggle room for negotiations, however, so it never hurts to ask for more. If there's any pushback, another option is to take a cash advance off of your card and use that to make the payment, but this approach can carry additional fees.

Tip

If you're concerned that telling a dealer you want to use a credit card might send up a red flag that you don't have available cash on hand, you don't need to be too worried. The perks offered by credit card companies to encourage users to charge big purchases make this kind of expenditure fairly commonplace.

Downside to Using a Credit Card

Using a credit card to make a down payment on a car has a number of potential drawbacks to consider. This approach means you're financing 100 percent of the price of the car, and if it's a new vehicle, the value drops as soon as you drive it off the lot. This leaves you automatically owing more than the car is worth. You'll also run into problems if you don't pay the balance off right away, as the interest charges raise the amount you'll wind up spending for the new wheels.