If you’re looking for a new or used car, you’ll need one down payment moneywhich is the part of the total cost of the car that you pay in advance.

Down payments can be made by personal check, cashier’s check or cash, and some dealerships also accept 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 finance a car purchase is generally not a good idea because of the potential risks involved. Here are a few reasons why you should think twice before using your credit card to make a car payment.

You will pay higher interest rates on credit cards

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 20% to 22% interest rates on your credit card.

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

You may lose your bargaining power

If you use a credit card to buy a car, the dealership may not want to negotiate the price. Dealerships pay a credit card transaction fee when customers buy a car with their credit card, which is money that comes out of the dealer’s pocket.

To avoid this, consider making arrangements with the dealer before telling them you’re paying with a credit card so you can work to get the best deal. Once you and the finance manager agree on a price, you can decide whether to use your credit card for the down payment.

Your credit score may deteriorate

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

When this happens, you can expect your credit score to deteriorate. And if you max out your card, there may be other penalties.

Advantages of advance payments by credit card

In general, experts do not recommend using a credit card for a down payment. You should only consider this option if you will be receiving credit card rewards or other benefits 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 may be able to open a new account with a 0% interest rate as an introductory offer. It’s an attractive way to finance your down payment and spread the costs over an annual period.

However, financing part of the down payment on your purchase with a credit card can be expensive if you miss the deadline and the promotion expires with the balance still owed.

Rewards and cash discounts

Another reason to use your bank card instead of your checkbook to make a down payment is the ability to accumulate points. With such a large purchase, there is great potential for significant rewards.

And if you can exchange points for cash back, it can help finance your new car purchase. Talk to your credit card company to find out what types of points or rewards you can earn when you use your credit card for a car down payment.

Other ways to make a down payment

There are many ways to make a down payment that don’t involve using your credit card. Here are some safer ways to put money toward a new car.

  • Exchange your car: If you want to buy a new car, think about it trading in his old. Even if your used car is only worth a few hundred bucks, every dollar counts.
  • Incentives for research producers: Check online for seasonal deals, coupons and discounts Ford Military Recognition Programwhich can help you get a low down payment or $0.
  • Use Wire Transfer or Electronic Funds Transfer (ETF): Since most dealerships won’t accept a large down payment in cash, consider using a money order to confirm the funds, or ask your bank to transfer them electronically.

While you can make a car down payment with a credit card, there are some potential risks. This can be a good strategy if you have the cash and the bonus points are worth it. However, if you’re not sure you’ll be able to pay off your bill before the next monthly cycle, consider some of the alternatives we’ve mentioned for peace of mind.


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