F. Lofrano & Son, Inc. - Folsom Street

Is it Smart to Buy a Car with a Credit Card?

Purchasing a vehicle with a credit card seems like great idea, but is it really a smart move in the long run?  Instead of doing a ton of loan paperwork, waiting for approval, and going to your bank to get a check all you have to do us drive away in your new automobile and watch your credit card rewards accumulate.

So, here at F. Lofrano & Son, Inc. - Folsom Street, we are posing this question, because if people here in San Francisco, CA want to buy their cars with credit cards, we want them to be informed about the possibilities.

The short answer to this question is no, and in the majority cases, you won't be able to do it anyway. There are a few situations where it makes sense to put some of the purchase on your credit card, but you have to be extremely careful about how you go about it.

Perhaps the most important thing to think about it is that car dealers are not enamored with the idea of accepting credit cards at all. The main reason is that if merchants accept your credit card, they will pay between one and four percent to the card credit company in fees for each transaction that they process. A dealership isn’t going to be thrilled about giving up that much profit. It’s more likely that a car dealership will say that it's okay for you to use a credit card for part of your down payment if they're anxious to get the sale.

Secondly, many credit cards come with generous chargeback rights for customers who feel that they were wronged by a merchant. Just by placing a transaction into a dispute, the customer could delay his or her payment to the dealer for weeks or even months. Most car dealers are not willing to accept that additional risk, so your credit card is not attractive to them in almost every way.

In addition, credit card debt is considered to be unsecured, so the bank that issues the card can't repossess your vehicle if you fail to make our payments while a lender on a traditional auto loan can repossess your vehicle.

If you’re considering using a credit card because you can’t qualify for a traditional car loan due to recent credit challenges that you have encountered, you should never use a credit card. Credit card interest rates can be hefty – often in the 14 to 28 percent APR range – so you can end up paying literally thousands of dollars in interest if you don't pay off the debt promptly. If you're only making the basic minimum payment or you can't make it at any time, you can rapidly bury yourself in major debt for a vehicle that's worth far less than your credit card balance.

So, in short--avoid buying a car with a credit card. It sounds good, but in the end it can get you in more trouble than you'd ever imagine!

Sources: Wikipedia, Consumer Reports and AOL