Can You Make a Car Down Payment with a Credit Card?

If you’re in the market for a new or used vehicle, you’ll need money for a down payment, which is a portion of the car’s total cost that you pay upfront.

Down payments can be made with a personal check, cashier’s check, or physical cash, and some dealerships also allow credit card payments.

But just because you can use a credit card for a down payment doesn’t mean you should. In this article, we’ll explain the pros and cons of making a down payment with your credit card.

Financial Risks of Using Your Credit Card to Make a Down Payment

More and more car dealerships are accepting credit card payments. However, using a credit card to fund a vehicle purchase is generally not a good idea due to the potential risks. Here are a few reasons why you should think twice before using your credit card for a car down payment.

You’ll Pay Higher Credit Card Interest Rates

When you use a credit card to make a purchase, you pay interest on your balance. If your credit score is over 670, you can expect to pay between 20% and 22% interest rates on your credit card.

With that in mind, you should only make a car down payment with a credit card if you can pay off your entire account balance before the next due date. If you can’t afford to pay the balance in full, using your credit card for a down payment might not be the best option.

You Could Lose Negotiation Power

When you use a credit card to buy a car, the dealership might not be willing to negotiate the price. Dealerships pay credit card transaction fees when customers buy a car with their credit card, which is money that comes out of the dealer’s pocket.

To avoid this, consider negotiating with the dealer before you tell them you’re paying with a credit card so you can work on getting the best deal. Once you and the finance manager settle on a price, you can decide if using your credit card for the down payment is worth it.

Your Credit Score Could Take a Hit

Before you swipe your credit card at the car dealership, find out how much available credit you have. Using your credit card for a down payment could put you over the recommended 30% credit utilization limit.

If that happens, you can expect your credit score to take a hit. And if you max out your card completely, there could be other penalties, as well.

Benefits of Credit Card Down Payments

In general, experts don’t recommend using a credit card for a down payment. It’s only worth considering this option if you’ll earn credit card rewards or some other benefit from your credit card issuer. Some benefits may be worth the financial risks, such as:

Low Introductory Interest Rates

Depending on which company’s credit card you have, you could open a new account with a 0% interest rate as an introductory offer. That’s an attractive way to finance your down payment and spread the cost out over the APR period.

Still, financing the down payment portion of your purchase with a credit card could be costly if you miss the deadline and the promotional term expires with a balance you still have to pay.

Rewards and Cash Rebates

Another reason to reach for your bank card instead of your checkbook to make a down payment is the ability to accumulate points. With this large of a purchase, there’s big potential to rack up significant rewards.

And if you can redeem the points for cash back, it could help fund your new car purchase. Talk to your credit card company to see what types of points or rewards you can earn if you use your credit card for a car down payment.

Other Ways to Make Your Down Payment

There are lots of ways to make a down payment that doesn’t involve using your credit card. Here are some safer ways to put money down on a new car.

Trade in your vehicle: If you want to get a new car, consider trading in your old one. Even if your old car is only worth a few hundred bucks, every dollar counts.Research manufacturer Incentives: Check online for seasonal offers, coupons, and rebates like Ford’s military recognition program, which could help you get a low or $0 down payment.Use a money order or electronic funds transfer (ETF): Because most dealerships won’t accept a large down payment in physical cash, consider using a money order to certify the funds or have your bank transfer them electronically.

While you can make a car down payment with a credit card, there are some potential risks. It may be a good strategy if you have the cash on hand and the rewards points are worth it. However, if you’re not sure you can pay off your bill before the next month’s cycle, consider some of the alternatives we mention for peace of mind.

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.