Paying a Car Payment with a Credit Card

There are plenty of reasons to consider making car loan payments with a credit card — everything from piling up rewards points or cash back, to scoring a bit of breathing room when your cash-flow hits a bump, to simple convenience.

No matter which among these piques your interest, you should proceed with eyes wide open, because we’re talking about large piles of actual money. According to auto industry experts Edmunds, the average monthly payment hit a record $730 for new cars in 2023 and a bracing $551 for used.

In the first quarter of 2023, more consumers than ever — a whopping 16.8% — committed to monthly payments of $1,000 or more. Staggering.

Clearly, owner-motorists need all the tools they can get their hands on.

If you are car shopping with credit card payments in mind, the threshold advice remains: Borrower beware.

Advantages of Using a Credit Card for Car Payments

Let’s take the upside first. Yes, there can be advantages to making car payments by credit card. We mentioned a handful above. Now, let’s dig in.

Flexibility

Typically, institutions that make auto loans require monotonous, punctual full payments. Month after month. By contrast, most credit card issuers allow borrowers to pay only a portion of their total balance — the infamous minimum payment.

Charge this month’s regular payment to your credit card, you buy breathing room in your budget now and, if you’re still squeezed next month, you can pay only the monthly minimum — that predetermined portion of your outstanding balance. Voila, flexibility.

However, fleeing to flexibility should not be a long-term or go-to strategy, warns personal finance analyst Derek Sall, founder of Life and My Finances.

“The only … time I would use a credit card to pay a car loan was if I was in a complete money crunch,” Sall says. “But I’d quickly be looking for other solutions like selling the car for a cheaper one, selling stuff, or somehow making additional money elsewhere so I could make the payments with cash again.”

» Learn More: Help with Car Payment

Lower or No Interest Rates

Another possibility is using a credit card with 0% introductory rates. The tantalizing hook is to offer new card holders a period of time, usually from 12-21 pay periods, when zero interest is charged on purchases or balances transferred from other loans, including credit cards.

Such an arrangement might prove useful to someone with fairly good credit who could move the entire loan balance (or even the purchase itself) onto the new card.

Two things to watch out for: Balance transfers incur a fee, usually about 3%. And when the grace period ends, rates skyrocket, often above 25%.

But if a borrower can pay off a car loan during the introductory period, (s)he will be far ahead. Caveat: Spending limits on 0% cards may be significantly lower than your car loan.

» Learn More: How to Lower Credit Card Interest Rate

Points and Rewards

Borrowers able to use reward cards for auto loan payments can reap substantial points, miles, cash back or other perks. This is particularly useful if you’re simply using the rewards card as a pass-through, and you’re paying off the balance each month.

The go-for-the-rewards angle gets a tepid endorsement from Lufkin, Texas-based Kovar Wealth Management CEO Taylor Kovar: “There could be circumstances where charging a car payment to a card makes sense. If you participate in a rewards or cash-back program, and your rewards exceed the cost of potential transaction fees or interest, it could be beneficial.”

Before you commit, check with the card issuer to make certain car loan payments are eligible for rewards. Not all charges are created equal.

» Learn More: Best and Worst Credit Cards

Disadvantages of Using a Credit Card for Car Payments

Using a credit card for car payments can’t be all good, or everybody would be doing it. (Who doesn’t want a C-5M Super Galaxy of airline miles for purchases you were making anyway?) And everybody isn’t. Potentially devastating downsides abound, so be careful out there.

Excessive Debt & Penalties

As mentioned above, 0% interest cards are a nifty way to get around car loan rates that, in the best cases, can run 7% (new) to 11.5% (used). But the end of the promotional period packs a wallop: 25% is the norm.

Consumers who use cards they’ve had for a while won’t enjoy low-interest grace periods. As a result, putting car payments on a card — if you’re not paying off the balance each month — can lead quickly to an enormous debt that generates crushing interest costs.

“It might be a bad idea to charge a car payment to a credit card if one is unable to pay the balance due on time,” says Raymond Quisumbing, MBA, a registered financial planner at BizReport. “Furthermore, some credit card companies may charge extra fees for car payments. As credit cards often have high interest fees, one should practice caution and manage their cash flow well.”

If you’re already carrying balances on your credit cards, it’s a dangerous strategy to add to them with car payments. You should strongly consider other arrangements. Remember, at the midpoint of 2023, Forbes puts the average interest rate on credit cards at 24.54%, more than triple the new car loan rate.

» Learn More: Is Paying the Minimum on a Credit Card Bad?

Credit Limitations

No-limit credit cards are few and far between. And, routinely, they require good to excellent credit scores. All of which is to say, if you’re carrying a typical card, or cards, the decision to add a monthly car payment (that you don’t always pay off) can quickly push you to your spending limit.

That’s a reckless strategy. Not only are you inviting crushing interest payments, allowing car loan payments — for which you ought to have budgeted — to pile up on your card(s) could put you in a bind if you encounter an emergency and have no spending room left.

» Learn More: What Happens if You Go Over Your Credit Limit?

Decreased Credit Score

Credit utilization is among the key components of every credit score. Nudge above 30% usage on a single card and your score will begin to slide south. Therefore, we reiterate: It’s OK to put car payments on a credit card (for rewards, cash back, other perks, etc.) only if you have the discipline to pay it off each month.

» Learn More: How to Increase Credit Score

Do Car Dealers Take Credit Cards?

Generally speaking, car dealerships accept credit cards. Although it’s rare, it’s not completely unheard of to put the entire cost of a vehicle on a card. Hey, who wouldn’t like 48,000 rewards points — a dollar per point for the median price of a new car in March 2023, says Kelley Blue Book — for a purchase you were going to make anyway?

Somewhat more routine is whipping out the old MasterCard to charge the down payment.

As in most financial transactions, however, caveats apply. It’s one thing for a dealership to absorb the typical 3% card-issuer fee on a $1,000 repair. But you could run into resistance if you suggest charging a down payment of $5,000 or more; the dealership may insist on adding the 3% to your out-the-door price.

In short, policies regarding credit cards are a dealership-by-dealership arrangement. Your mileage may vary.

How to Make a Car Payment with a Credit Card

When it comes to making a car payment with a credit card, lenders are like dealerships: Each is guided by set policies.

If your lender accepts credit cards for payments (and you’re confident about your payoff plan), you’re good to go.

However, most accept only cash-equivalent payments: checks, debit cards, electronic checks, bank account transfers, or money orders.

One workaround involves employing a third-party payment processing service (PayPal, Venmo, Plastiq), but the reason better be profitable: You’ll be on the hook for the card-issuer’s ballpark 3% fee.

Cash Advance

If your lender requires payment by one of the aforementioned cash equivalencies, your credit card may yet come in handy. Most issuers allow cardholders to take out a cash advance, up to some portion of the consumer’s spending limit.

Generally, getting a cash advance means going to an ATM or bank branch that works with your card issuer. Deposit the cash into your bill-paying account and make your payment as usual. There, you’ve used your credit card to make a car payment.

Beware: Cash advances usually are accompanied by fees linked to the amount borrowed, and the interest (which will not be cheap) begins accruing immediately. Like the depth of a swimming pool, it’s important to understand the full impact of a cash-advance gambit before diving in.

Balance Transfer

With credit card interest rates at historic highs, balance transfer cards are all the rage. The hook: Qualify for one (or more) balance transfer credit cards, and you can transfer existing loan balances to the new card – for a fee, usually 3%.

For the next 12-21 billing cycles, depending on the issuer, you’ll pay zero interest. With a sufficiently high credit line, it could be possible to move an entire car loan to a balance transfer card.

Just be sure about your plan to pay off the transferred balance before the introductory period ends. Rates soar after that.

Convenience Check

Some credit card issuers enable consumers to make payments via convenience check. Unlike a cash advance, which comes from reserves, a convenience check — which is just like a traditional check — comes from the borrower’s available credit balance.

Make a check payable to yourself, deposit it into your bill-paying account, then issue your payment as is your custom. Or, make the check out to your lender, pop it into a stamped, addressed envelope, and drop it in the mail.

Is It Smart to Pay My Car Note with a Credit Card?

We have arrived at the bottom line: Is it smart to make car payments with a credit card? If you have come this far looking for a definitive one-size-fits-all answer, prepare for disappointment.

Because the answer is: It depends.

If your credit card balances are low and your credit limits are high; if the rewards you’ll reap are more valuable than the fees you’ll incur; and if you have the budget, the cashflow, and the discipline to pay the full amount of each car payment to the card issuer each month, then we can say: Charging car payments to a credit card definitely, possibly, just might be OK.

Wealth manager Kovar is, by contrast, somewhat more generous.

“While charging a car payment to a card isn’t inherently a bad idea,” he says, “it does come with potential drawbacks. Higher interest rates on credit cards compared to auto loans, transaction fees, and increased credit utilization can adversely affect your financial health.

“Therefore, while not always negative, it should be approached with caution, thorough analysis, and a clear understanding of the financial impact.”

But where can the earnest consumer gain an informed opinion about the potential pitfalls vs. benefits? By having a broad discussion about your personal financial situation with a nonprofit credit counselor.

During your no-obligation consultation, your credit counseling agency expert can lay out the best, most current information for (a) helping you improve (or repair, if need be) your financial condition as well as (b) buy, or pay off, a car in the most responsible fashion possible.

With a credit counselor on your team and coaching you up, you’re certain to make the right (not to mention the best) decision regarding what to do about car payments, and the rest of your personal finances as well.