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Whether or not you can pay car payments by credit card depends on the lender. While some car dealers will accept car payments by credit card, many only accept car loan payments via bank transfer, check, debit card, and other non-credit forms of payment.But even if it’s possible, is it a good idea to pay car payments with a credit card? Before charging your car payments, it’s best to consider all of the ins and outs — particularly the costs you might face.Paying Car Payments with a Credit Card
Even if a lender does not allow individuals to pay off a car loan directly using their credit card, there are several ways around this limitation that still enables buyers to charge their car payments. Third-Party Credit Card Processors
While a lender may not accept credit cards directly, they may accept card payments that are facilitated by a third-party processor. In such cases, a lender may work with one specific processing company or they may accept funds from any processor that facilitates credit card payments.It’s important to note, however, that while such processors may make it possible to charge car payments to an individual’s credit card, such payments are typically subject to extra fees, often based on a percentage of the payment. Recommended: 8 Ways to Get a Lower Car PaymentBalance Transfer Credit Card
Balance transfer credit cards allow the account holder to transfer the balance owed on another loan onto that credit card. However, there may be some restrictions on the type of debt that can be moved. For example, some balance transfer credit cards only allow an individual to transfer over existing credit card debt, meaning that if the car payment wasn’t initially made by credit card, that balance would be ineligible. Other balance transfer credit cards may allow individuals to transfer other types of debt, including car payments.One restriction that many balance transfer credit cards typically have in common is that they don’t allow an individual to transfer a loan that was originally obtained from that same lender. So if a car loan was obtained from a specific bank, the buyer would likely not be able to pay for that loan using a balance transfer credit card issued by the same bank or its affiliates.Cash Advance
Credit cards also typically offer cash advances, which allow an individual to withdraw money against their credit card from an ATM or bank branch. A cash advance is not the same as withdrawing money from a checking or debit account, or even other types of credit card purchases.While a cash advance provides the card holder with access to immediate cash flow, which they can then use to pay for essentially anything they want, cash advances carry different lending terms than other credit card purchases. They are subject to interest (often at a higher rate than the APR on purchases), and there’s typically no interest-free grace period, even if the advance is paid back by the statement due date. You may face other fees, as well. Additionally, the cash advance limit on a credit card may be lower than the credit card limit itself.Money Transfer
It may also be possible to pay for a car with a credit card if the lender accepts money transfers. However, it’s a good idea to check with the credit card issuer before initiating a money transfer, as this type of transaction may be treated like a cash advance and ultimately cost more due to the resulting interest charges and fees.Pros and Cons of Making Car Payments with Credit Cards
Just because it may be possible to make car payments with a credit card, it doesn’t always mean it’s the best choice.Here are some pros and cons of charging car payments.Pros of Making Car Payments with Credit Cards
- You can carry a balance with a credit card. While car payments are due in full on the due date each month, credit cards allow an individual to pay only the minimum by their statement date and then carry a balance. Although it’s never a good idea to charge more than one can afford (and outstanding balances are subject to interest charges), this can be an option in the event that unforeseen expenses make cash flow tight in a given month.
- Flexibility with payments. It also provides more flexibility timing-wise, allowing an individual to make a payment when it suits them (for example, on pay day), instead of their monthly auto loan due date.
- May get credit card rewards. Charging big-ticket items to a rewards or cash back credit card may increase benefits and earnings (if car payments are eligible under the rewards program).
- May receive 0% introductory APR on balance transfer. Some balance transfer cards offer promotional periods with 0% APR charged on loans that are moved over from elsewhere. In such cases, it may be possible to save on interest.
- Reduces risk of car repossession. Auto loans are typically secured, using the auto itself as collateral. This means that if the buyer fails to make payments, their car can be seized. But credit card debt is unsecured revolving debt, reducing the risk of car repossession.
Cons Making Car Payments with Credit Cards
- Substantial fees. Many of the workarounds that enable a car buyer to charge payments to their credit cards incur sizable extra fees. Whether it’s a 3% processing fee charged by a third-party who can facilitate payment, ATM fees, higher interest or cash transfer fees, or even prepayment penalties for paying off the balance in full, these all increase the cost of buying a car. Ultimately, paying by card could cost more than the original car loan or than the cost to refinance a car.
- Credit score may be affected. Credit scores are determined, in part, by an individual’s credit utilization ratio, or the percentage of available credit that they are using. While some credit utilization is a good thing — it shows lenders an individual can manage their credit effectively — too much signals risk to the lender. While installment loans, such as car loans, don’t factor into credit utilization in the same way, credit card balances do — and charging car payments may cause one’s credit utilization to increase beyond the recommended threshold. This can result in a drop to one’s credit score.
- May pay more in interest. Zero percent APR offers on balance transfer cards often only apply for a promotional period — and interest climbs after that. If the car loan is not paid off before the new interest rate kicks in, the buyer may end up ultimately paying more for their car.
How Might Paying Car Payments With Credit Cards Affect Your Credit Score?
As mentioned previously, making car payments with your credit card could ding your credit score by increasing your credit utilization ratio, or how much of your available credit you’re using. Car buyers in the U.S. spend an average of $726 on new car payments each month. This could end up accounting for a big chunk of your available credit, depending on your limit. Other Ways to Pay Your Car Loan Payments: Refinance Your Car
Another way to pay for your car is to refinance your auto loan. Refinancing may allow you to get a lower interest rate or extend your loan term, which may lower your monthly payment. Keep in mind, though, that extending your term will make it so you pay more money in interest overall.But just like paying by credit card, there are pros and cons of refinancing your car, including the potential for additional costs due to prepayment penalties. Before you sign on the dotted line, you’ll want to make sure you ask any and all refinancing questions to ensure refinancing actually makes sense for your situation.The Takeaway
A car is one of the most significant purchases an individual can make, and the costs involved mean it’s a good idea to put some thought into how best to pay back a car loan. Make sure to consider the pros and cons involved if you choose to pay your car payment with a credit card.Another solution to more easily making your car payment is refinancing. Lantern by SoFi can help you compare rates and see if you qualify for auto loan refinancing.
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Lantern
Lantern is a product comparison site that makes it easy for individuals to shop for products and compare offers with top lenders. Lantern is owned and operated by SoFi Lending Corp., the digital personal finance company that has helped over one million people get their money right.
