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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 a good idea to consider all of the ins and outs — particularly the costs you might face.Paying Car Payment with a Credit Card
Even if a dealership does not allow individuals to pay off a car loan directly using their credit card, there are several ways around this limitation that still enable buyers to charge their car payments. Third-Party Credit Card Processors
While a car dealer may not accept credit cards directly, they may accept card payments that are facilitated by a third-party processor. In such cases, a dealer 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. Balance 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 also 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 from Western Union or another such service. 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 and other fees.Pros and Cons of Making Car Payments with Credit Cards
Even though all lenders may not accept credit cards to pay for a car loan, there are ways around this restriction in many cases. But just because it’s possible to make car payments with a credit card 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
- 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.
- 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.
- 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). It can also help a car buyer hit bonus thresholds, such as welcome bonuses that provide increased earning for spending a certain amount, without spending more money than they already are.
- 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.
- As anyone who knows how car loans work will attest, these 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
- 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, an already depreciating asset. Ultimately, paying by card could cost more than the original car loan or than the cost to refinance a car.
- 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. FICO, for example, looks for utilization below 30%. 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 score.
- 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 score 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 $563 on car payments each month, according to data from Experian. 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
There are other options, such as taking out a new loan with more favorable terms — whether with a new lender or via same lender refinancing. But just like paying by credit card, there are also 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.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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