When it comes to buying a car, most people opt for cash payments, loans, or a combination of both. However, some adventurous buyers explore the option of buying a Car with a Credit Card. The idea of earning reward points, cashback, or travel miles may seem enticing, but the process is not as straightforward as swiping your card for everyday purchases.
Before you decide to use your credit card to buy a car, there are several factors to weigh, from transaction fees to dealer policies.
In this guide, we’ll explore the top 5 things to consider to help you decide if paying for a car with a credit card is the right choice for you.
1. Can You Pay 100% of the Car’s Price with a Credit Card?
The idea of buying a car entirely with a credit card might sound convenient, but in reality, most car dealerships don’t allow it. Here’s why:
How It Works:
- Booking Amount: Most dealerships accept credit card payments for the booking amount, which typically ranges between 5% and 10% of the car’s total price. For example, if you’re buying a car worth ₹10 lakhs, you might pay ₹50,000 to ₹1 lakh via credit card.
- Balance Payment: Dealerships usually require the remaining balance to be paid through bank transfers, checks, or loans. While some premium dealerships might allow partial credit card payments up to ₹3–5 lakhs, this is rare.
What to Do:
If your goal is to pay 100% of the car’s price using a credit card, it’s crucial to discuss this option with the dealership beforehand. Be prepared for alternative arrangements, as most dealers won’t allow full credit card payments.
2. Transaction Fees and Dealer Policies
One of the biggest roadblocks to buying a car with a credit card is transaction fees. When you use a credit card, dealerships incur a fee paid to the payment processor, which can range from 1.5% to 2.5% of the transaction amount.
Example:
- Amount Paid: ₹5 lakhs
- Transaction Fee: 2% = ₹10,000
With premium cards like American Express, fees can go even higher, sometimes reaching 3%.
Dealer’s Perspective:
Since these fees eat into the dealership’s profit margins, many businesses:
- Limit credit card payments to the booking amount only.
- Pass the transaction fees to the customer.
- Offer discounts for payments made through alternative methods like bank transfers or checks.
Always ask your dealership about their transaction fee policy before deciding to pay with a credit card.
Also Read : Automatic Credit Card Payments Made Simple: Benefits, Steps, and Tips
3. Merchant Fees and Additional Charges
Even if a dealership accepts large credit card payments, be prepared for possible merchant fees. These fees are added to cover the dealership’s processing costs and typically range between 1% and 2% of the transaction amount.
Example:
- Payment Amount: ₹3 lakhs
- Merchant Fee: 2% = ₹6,000
To avoid unexpected expenses:
- Inquire about merchant fees upfront.
- Negotiate with the dealership to waive or split the fees.
Some dealerships might agree to cover part of the fee if you’re using a premium credit card or making a large purchase.
4. Maximize Rewards but Be Cautious
One of the most attractive aspects of buying a car with a credit card is the opportunity to earn reward points, cashback, or travel miles. However, it’s important to calculate whether the rewards outweigh the costs.
Example:
- Reward Points: A card offering 1% cashback would earn ₹5,000 on a ₹5 lakh payment.
- Transaction Fee: 2% fee = ₹10,000
In this scenario, you’d lose ₹5,000 despite earning cashback. Additionally, if you can’t pay off the credit card balance in full, high-interest rates could negate any benefits.
Tips:
- Use premium credit cards that offer higher rewards (e.g., 2% cashback or bonus miles).
- Confirm with the dealership about potential fee waivers.
- Ensure you have the funds to clear the card balance immediately to avoid interest charges.
5. Alternative Payment Strategies
If you’re determined to use your credit card for a car purchase, consider these strategies to minimize costs and maximize benefits:
a. Extend the Booking Amount
- Negotiate with the dealership to increase the percentage of the car price you can pay as the booking amount via credit card. For example, instead of 10%, request to pay 20% to earn more rewards.
b. Split Payments
- Many dealerships allow a combination of payment methods. For instance, you can pay part of the amount with your credit card and the rest through bank transfers or loans. This way, you can still enjoy some reward points without incurring excessive transaction fees.
c. Leverage No-Cost EMI Plans
- Some credit cards offer no-cost EMI options, allowing you to spread the payment over several months without additional interest. Check with your card provider if this option is available for car purchases.
Upshot: Is It Worth Buying a Car with a Credit Card?
While the idea of buying a car with a credit card has its perks, it also comes with significant challenges. Transaction fees, dealer policies, and potential interest charges can make this payment method less appealing than it initially seems.
Key Takeaways:
- Most dealerships allow credit card payments only for the booking amount or partial payments.
- Transaction fees and merchant charges can significantly increase your costs.
- To maximize benefits, use premium credit cards and negotiate fee waivers where possible.
- Explore alternative strategies like splitting payments or leveraging no-cost EMI options.
By carefully evaluating the pros and cons, you can make an informed decision that aligns with your financial goals. If you’re planning to buy a car with a credit card, be proactive in understanding dealer policies and ensure you have a clear repayment plan to avoid unnecessary financial strain..
Also Read : 10 Super Benefits of Using Credit Cards for Your Daily Needs
Disclaimer: Financepanga provides informational content only and does not offer financial advice. Always consult a professional before making financial decisions.
