It's not easy to put a car on your credit card. But it can be done. I've done it three times — and earned thousands of dollars worth of rewards as a result.
To be sure, car dealers don't want customers to put vehicles on their cards. It costs them money. That means you have to summon a little extra nerve. And you need to be aware of the risks — since credit cards charge far higher interest rates than auto lenders.
But if you can accomplish those things, it's a great way to pad your rewards. Here's how I've made it work for me.
How to earn credit card points buying a car
When you are able to pay for your entire vehicle with cash, it will be to your advantage to use a reward credit card for the transaction, so long as you pay off your balance in full.
That way, you can earn significant points, miles or cash back from your rewards credit card, at no cost to you. According to Kelly Blue Book, the average price for a light vehicle purchased in the United States was $38,378 as of July 2020. If you were able to make that purchase with a credit card such as the Citi Double Cash, which offers 2% cash back on all purchases, then you'd receive $767 in cash back (Just note that the Citi Double Cash offers you 1% cash back at the time of purchase, and another 1% cash back when you pay for your purchase, for a total of up to 2% cash back).
How to buy a car with your credit card
Over the last ten years, I've purchased two used cars and one new car for three different dealers. And each time I was able to charge the entire purchase amount to my credit card. But automobile dealers don't like it.
That's because customers who pay for cars with credit cards will be eating into a dealer's profit margin as merchants must pay a processing fee of 2% to 3% of the cost of each credit card transaction. So you can imagine they're not happy when you mention that you'd like to use a credit card to pay for your vehicle. Realizing that I will face resistance, I try not to disclose my method of payment for as long as possible, and I just say that I'll be paying with cash when asked if I'm interested in a financing options.
Only after I've selected a vehicle, and negotiated the best possible price, I will agree to the purchase on the condition that they accept my credit card for the entire amount. Typically, the sales person will either say no and even will claim that they have a policy that prevents customers from charging more than a certain amount. But in my experience, these policies are no more concrete than the manufacturer's suggested retail price on the window sticker.
So at that point, I'll just reiterated that I can only purchase the vehicle with my credit card, and I'll have to go elsewhere if they can't make that work. And it's not a bluff, as I'm willing to buy my car from another dealer to effectively save hundreds of dollars. Once the salesperson has invested the time and effort, and can almost taste the deal coming to a close, he or she invariably consults their manager who will agree to accept my credit card to close the deal.
Tips for using your credit card to buy a car
The most important thing is to remember is that this strategy only works when you avoid interest charges by paying your credit card balance in full. With an average interest rate of about 15% APR, a credit card is a terrible way to financing your vehicle. So if you're unable to pay off your charges immediately, then you'd be better off looking for a vehicle loan from your bank or credit union, which will almost certainly have a much lower interest rate.
You also want to select the best possible rewards card for the transaction. Since no major credit cards will offer you a bonus for car dealership purchases, you're looking for a card that offers the most valuable rewards per dollar spent on charges that are eligible for a bonus. In addition to the Citi Double Cash, you could consider the Chase Freedom Unlimited, which offers you 1.5% cash back on all purchases, with no limits.
When I used a credit card to purchase a car the first time, I used the Discover it Miles card, which offers 1.5 miles per dollar spent on all purchases. These miles can be redeemed for one cent each as cash back, and Discover automatically matches the Miles you've earned in your account's first year. So I earned 3x miles for the $15,000 used car I purchased, which were worth $450 in cash back rewards.
Finally, you should always contact your credit card issuer before attempting to make an unusually large charge. Tell them the amount of the charge and the name of the dealer you'll be making the purchase from. Assuming you have enough available credit, the card issuer will essentially pre-approve the charge and it should go through with no problems. And if the charge exceeds your current credit limit, they may still agree to approve it. But you'll never know if you don't ask! In fact, many cards now have no preset spending limit, so charges are approved on a case by case basis. Otherwise, you could simply charge a portion of the sale price, and write a check to the dealer for the remainder.