Can I pay my car payment with a credit card
[2023 Updated]

Can I make a car payment with a credit card?

Yes, you can. But that is if your lender provides that option. Most lenders want to avoid the fees for processing credit card transactions, so they do not accept car payments with credit cards.

However, some will accept credit card payments on the condition that you will cover the fees. Make sure you check in with your lender to verify their lender’s policy in that regard to be sure it favors you.

If your lender does accept credit card payments, you'll need to ensure that your credit card has a high enough limit to cover the payment. Additionally, make sure to review the terms and conditions of your credit card to confirm that making a car payment won't result in additional fees or impact your rewards.

Keep in mind that using a credit card to make car payments might not always be the best financial decision, as it could lead to higher interest charges, lower credit scores, or other financial drawbacks. It's crucial to weigh the pros and cons before deciding whether to pay your car payment with a credit card.

Can I Make a Credit Card Car Payment Via a Third-Party Service?

Lenders have different policies, some of which might hinder you from making a car purchase with your credit card directly. A way around this would be to use a third-party service.

Third-party services serve as a middleman between you and your lender. With your credit card, you would pay the third-party business, which would then send the money to your lender on your behalf.

Common third-party services include Plastq, PayPal, and Cash App. It is, however, important to note that these payment options might incur additional fees. They charge processing fees that can range from anywhere between 2% to 3.5%. Any perks or benefits you receive from using your credit card to make car payments may be offset by this additional expense.

Before using a third-party service, make sure to confirm that your lender accepts payments from the specific service you plan to use. It's also a good idea to read the terms and conditions of the third-party service and understand any fees or limitations that may apply to your transactions.

Can I use a credit card to pay off my car loan?

Although it is legally possible, it isn't usually a wise idea to pay off your car loan using a credit card. This is due to the fact that using a credit card to pay off a car loan often entails more fees and interest rates than paying it in other ways.

Another factor you have to consider is your lender’s policy. Some lenders do not allow car loans to be paid off with credit cards. Some credit card issuers also do not allow this option.

There are a few ways to pay off a car loan with a credit card, such as using a balance transfer, a cash advance, or a convenience check. However, each of these methods comes with its own set of challenges, fees, and potential drawbacks.

For example, balance transfers typically involve a fee ranging from 3% to 5% of the transfer amount. Additionally, promotional interest rates for balance transfers often expire after a certain period, at which point the standard interest rate will apply.

Similarly, cash advances and convenience checks can come with high fees and interest rates, making them costly options for paying off a car loan.

Advantages of Paying a Car Payment with a Credit Card

Avoid paying interest with a 0% APR credit card

If you have a credit card with a 0 percent APR introductory offer, you can potentially save on interest charges by making car payments with that card.

For example, let's say you have a car loan with a remaining balance of $10,000 and an interest rate of 5% per year. If you transfer this balance to a credit card with a 0 percent APR offer for 12 months, you could save up to $500 in interest charges over that period.

To take total advantage of this offer, you should try to pay off your balance before the promotional period elapses. The 0% APR is temporary, and once this period is over, the credit card company will start charging you interest on the principal using standard interest rates.

Earn points and rewards from credit card

Using a credit card to make car payments can also help you earn points, miles, or cashback rewards, depending on your card's rewards program.

Let's say your monthly auto payment is $500, and your credit card offers 2% cashback on all purchases. In this case, you may receive $10 in cashback rewards each month, and this adds up to $120 annually.

However, it's crucial to ensure that any rewards you earn aren't negated by additional fees or interest charges associated with using your credit card for car payments.

Increase the speed of getting full ownership

If you have a credit card that offers a 0% interest rate for a limited length of time, you can use it in a sensible way to make your car payments.

By doing this, you can put more of your money towards your car payments without having to pay extra interest rates. This can help you pay off your auto loan faster, which means you can buy your car outright and get the title sooner.

For example, let's say you have a car loan with a remaining balance of $10,000 and an interest rate of 4% per year. Your monthly payment is $450, and it would take you approximately 24 months to pay off the loan.

If you use a credit card with a 0 percent APR offer for 18 months and increase your monthly payment to $600, you could pay off the loan in just 17 months, thus saving seven months' worth of payments and reducing the overall interest paid.

Keep in mind that this approach is only effective if you can pay off the credit card balance before the promotional interest rate expires. Additionally, it's important to ensure that the benefits of accelerated payments outweigh any fees or potential drawbacks associated with using a credit card for this purpose.

Drawbacks of Paying a Car Payment with a Credit Card

You May Face Credit Limit Issues

Using a credit card to make car payments or pay off a car loan could result in reaching or exceeding your credit limit, especially if you have a high loan balance or multiple credit card debts.

Let’s say you have a credit limit of $8,000 and you owe $10,000 on your car loan. You will not be able to pay off the entire loan balance with your credit card. The $10,000 is way above your credit limit and trying to pay might cause issues with your credit card company. They might charge you over-limit fees.

Paying your car payment with your credit card can also limit the credit you have available for other expenses.

It’s important to note that your credit utilization takes up about 30% of your credit score. Consistently running up high balances on your credit cards could negatively impact your credit score and you could pose as a red flag to future lenders.

Standard Interest Rates on Credit Cards Are High

Credit card interest rates are typically much higher than those on car loans.

The average interest rate for car loans is about 4 - 6%. On the other hand, credit card rates for car payments can be as high as 20%. This implies that if you are still carrying your debt after the introductory 0% interest rate has expired, you will end up paying more interest than you would have with a car loan.

This higher interest rate can result in a longer repayment period and increased overall cost of your debt, making it even more challenging to become debt-free.

Large balance transfers may result in a drop in your credit score

When you transfer a large balance to a credit card, your credit utilization ratio (the amount of credit you're using compared to your available credit) increases. A high credit utilization ratio can negatively impact your credit score, making it more difficult to obtain loans or credit cards in the future.

Additionally, opening a new credit card to facilitate a balance transfer could also impact your credit score by reducing the average age of your accounts, which is another factor used in credit scoring models.

Balance transfers often come with a fee

You'll probably be charged a fee when you transfer the remaining balance of your car loan to a credit card. The typical range for this cost is 3-5% of the amount you are transferring.

Your potential savings or incentives from using the credit card to pay for your car may be offset by the charge. Before making any decisions, it's crucial to thoroughly analyze the fees connected with balance transfers.

For example, if you transfer a $10,000 balance to a credit card with a 3% balance transfer fee, you'll incur a $300 fee.

The penalty is steep if you don’t pay off the balance quickly enough

If you're unable to pay off the transferred balance before the promotional interest rate expires, you could face high-interest charges on the remaining balance. This could make it even more difficult to pay off your debt.

Moreover, some credit cards may apply deferred interest to the remaining balance, meaning that if you don't pay off the balance in full by the end of the promotional period, you could be charged retroactive interest on the entire original balance.

Potentially Higher Interest After Grace Period

After the promotional offer period expires, the interest rate on your credit card’s balance skyrockets. When you make car payments with your credit card, your car loan adds up to your credit balance, and you incur interest faster on it. If you eventually cannot make payments as expected, you end up owing far more money because of the accrued interest.

Should I use a credit card to pay my car payment?

Deciding whether to pay your car payment with a credit card depends on various factors, such as your financial situation, credit card terms, and the potential benefits and drawbacks. To make an informed decision, consider the following aspects:

• Interest rates: Interest rates on credit cards differ significantly from the rates on car loans. If the interest rate you’ll be paying on your credit card is higher, then using your card to pay car payments might not be a good choice, as it could cause higher overall interest payments.

• Fees: Evaluate any fees related to using a credit card for car payments, such as transaction fees or fees charged by third-party services. These fees can outweigh any possible savings or benefits received from using a credit card.

It's crucial to read the fine print and comprehend the fees involved with using a credit card before making a decision.

• Credit impact: Using a credit card for car payments will increase your credit utilization ratio, which may negatively affect your credit score. The credit utilization ratio is the amount of credit you're utilizing compared to the total credit available to you.

Verify that the benefits of using a credit card outweigh any potential credit score harm. Also, keep in mind that using a credit card responsibly and making on-time payments can have a favorable impact on your credit score.

• Promotional offers: Using a credit card with a promotional offer of 0% APR or a rewards program can be beneficial for making car payments.

Nevertheless, it is crucial to ensure that you can pay off the balance before the promotional period expires to prevent incurring high-interest charges. Alternatively, consider whether the rewards earned are worth the potential risks.

• Credit card rewards available: Some credit cards have appealing benefits like cash back, bonuses, and other incentives. If the reward program of your credit card company outweighs the fees associated, you can use your credit card for your car payment.

• Your Financial Situation: Before using your credit card for car payments, assess your financial capacity. If you cannot afford to pay off as scheduled and manage your credit card payments responsibly, do not put your car payment on your credit card so you don’t get into a worse financial situation.

Ultimately, the decision to pay your car payment with a credit card should be based on a thorough analysis of your individual financial situation and a careful consideration of the potential benefits and drawbacks. If you're unsure about whether this method is right for you, consult a financial advisor for personalized guidance.

5 Ways to Make Car Payments with a Credit Card

Use Cash Advance

A cash advance allows you to withdraw cash from your credit card, which you can use to make car payments.

However, this method has several disadvantages, including high fees, immediate interest accrual, and potentially higher interest rates than your regular credit card purchases. Cash advances should only be considered as a last resort due to their high costs.

Let's say you use your credit card for your $500 monthly car payment. Your credit card company charges a 5% fee for cash advances and has an interest rate of 20%.

You will be charged $25 for the fee and $100 in interest charges if you can't pay off the debt right away. This implies that using your credit card to pay your car payment might end up costing you more money than if you had paid with cash or a standard bank transfer.

Try Balance Transfer

It might be a wise choice to transfer the balance of your car loan to your credit card if your credit limit is high enough. Plan to maximize the 0% interest introductory period so you can pay off your car payment without interest using your credit card. To fully enjoy the reward, pay the loan in full before the promotional offer expires.

However, keep in mind that this action can lower your credit score because your credit utilization rate would increase. Also, you would be required to pay between a 3 - 5% balance transfer charge by your credit card company.

For instance, if you have a $10,000 car loan with an 8% APR and transfer the balance to a credit card with a 0% APR for 12 months and a 4% balance transfer fee, you will incur a $400 fee but could potentially save $800 in interest charges.

Try a Convenience Check

Some credit card issuers provide convenience checks, which are paper checks linked to your credit card account. You can write a convenience check to your car loan provider and use it to make car payments.

However, using a convenience check is often treated as a cash advance, with high fees and interest rates. It's important to read the terms and conditions associated with convenience checks before using them for car payments.

For example, if you need to make a $1,000 car payment and use a convenience check linked to your credit card with a 25% APR, you will incur $250 in interest charges if you do not pay off the balance immediately.

Purchase a Money Order

Buying a money order with your credit card is another way to make car payments. To employ this approach, you'll need to buy a money order using your credit card and then mail it to your car loan provider as payment.

But, bear in mind that purchasing a money order using a credit card might be classified as a cash advance, which means you may pay greater costs and interest rates compared to typical credit card transactions.

Cash advances often come with a charge of roughly 5% of the transaction amount and high-interest rates that start collecting immediately.

For instance, if you use your credit card to purchase a $500 money order to pay your car loan and your credit card company charges a 5% cash advance fee and a 20% APR, you will incur a $25 fee and $100 in interest charges if you cannot pay off the balance immediately.

Other Car Payment Options through a Third-Party Credit Card Processor

If your lender does not accept credit card payments, you can still use a third-party credit card processor to make your car payments. These services charge a fee for processing the payment but can be a useful option for those who want to earn credit card rewards or take advantage of promotional offers.

Here are some examples of third-party credit card processors that allow car payments:

Plastiq

Plastiq is a payment platform where you can pay your car payment using your credit card. When you sign up on Plastiq, you register your credit card on the platform and add your lender as a payee so they can receive payment.

Your auto lender can get your car payment using this service even if they are not Plastiq members. A fee of 2.5% is charged for credit card payments through their service.

Plastiq sends the payment to your car loan provider in the form of a check, which can take up to seven business days to process. However, the service is not available in all states and may not be accepted by all car loan providers.

For example, if you use Plastiq to make a $1,000 car payment and pay a 2.5% transaction fee, you will incur a $25 fee but could earn cashback or rewards points from your credit card company.

PayPal

Paypal is an online payment platform that facilitates payments between individuals. They offer a special feature called PayPal Credit, allowing you to use your credit card to make car payments.

PayPal Credit is a reusable credit line that is built into your PayPal account. It allows users the flexibility to pay for online or in-person purchases as desired. The service charges a card processing fee of 2.9% for each transaction.

For instance, if you use PayPal to make a $500 car payment and pay a 2.9% transaction fee, you will incur a $14.50 fee but may be able to take advantage of promotional financing options.

To make payments automatic and on time, you can integrate your PayPal account with your bank account.

Cash App

Cash App is a P2P payment application that allows consumers to send and receive money. In addition to mobile banking, Cash App also allows its user to pay bills, including car payments. The company recently added a Cash App Tax feature which allows its users to file their taxes on the platform.

You can use Cash App to pay for your car payment. Cash App users receive a Cash Card, which is a debit card tied to their Cash App account. This Cash Card can be used to pay for transactions online and in person, but it usually attracts a service fee of 3%.

For example, if you use Cash App to make a $750 car payment and pay a 3% transaction fee, you will incur a $22.50 fee, which may not be worth it if you're not earning significant rewards on your credit card.

Tip: Keep in mind that not all car loan providers accept payments from third-party processors, so it's important to confirm with your lender before using this method.

Alternatives To Using a Credit Card To Make Car Payments

While using a credit card to make car payments can be an option for some, it may not always be the most practical or financially feasible choice. Here are some alternatives to consider:

Shop Around for an Auto Loan

To get the best deal possible on your auto loan, you might have to do some extra research and digging. Prices of loans and their terms are not fixed. Most banks, online vendors, and credit unions offer a variety of auto loan options.

This can include secured and unsecured loans, fixed and variable interest rates, and flexible repayment terms. Before you can find a lender that offers rates and terms you consider favorable, you’ll have to compare their interest rates and fees.

For example, if you qualify for a car loan with a 5% APR and a 60-month loan term, your monthly payment for a $20,000 car would be around $377, and the total interest paid over the life of the loan would be $2,632.

Save Up To Pay With Cash

Another option is to save up money to pay for the car in cash. This method avoids the need for financing or credit and allows you to own the car outright. While it may take longer to save up the funds, paying with cash can provide financial flexibility and peace of mind.

Trade-In Another Vehicle

Many dealerships offer car trade-in programs. For individuals who wouldn't mind getting rid of their old cars in order to get credit towards the purchase of a new one, a trade-in might be a good option.

Usually, your dealer will determine the value of your old vehicle based on the current market value and deduct that amount from your new car’s purchase price. Remember that trade-in values differ. To get the most out of this deal, you have to negotiate to get the best deal possible.

For example, if you trade in a car with a trade-in value of $5,000 and purchase a car for $20,000, your out-of-pocket expenses would be reduced to $15,000.

Getting Cash Back vs. Refinancing: Which One Saves More?

Earning Cash Back with a Credit Card

Some credit cards grant cash-back bonuses for different expenditures, including those for car payments. By using a credit card that offers cash-back rewards, you can earn cash back on your car payments and potentially save money.

Let’s say you pay $700 per month for your car, and your credit card gives you 2% back. This means every month, you earn $14 as a reward for using your card. This sums up to $168 every year. This might help you save money and obtain some additional cash in your pocket.

Refinancing Your Car Loan

Refinancing involves replacing your current car loan with a new loan that has better terms, such as a lower interest rate, shorter loan term, or lower monthly payments. By refinancing, you can potentially save money on interest charges over the life of the loan.

For instance, if you have a car loan with a 7% APR and a $400 monthly payment for a $20,000 car, refinancing to a loan with a 5% APR and a $380 monthly payment can save you $1,200 in interest charges over the life of the loan.

What Option Will Save You More Money?

Both refinancing your car loan and earning cash back with your credit card are good ways to potentially save money. However, you need to choose one that aligns with your goals and will work better for your current loan status.

Let's say you have a car loan with a high-interest rate, you can refinance your loan to one that offers a lower interest rate and potentially save money. In this case, refinancing is a better choice for you.

However, if you already have a car loan that offers a low-interest rate. You can make your monthly payments easy and potentially save money by paying your loan with a credit card that offers high cash-back rewards.

FAQs

Do Car Dealers Accept Credit Cards?

Most car dealers do not accept credit cards for payment of the entire purchase price of a car. However, some dealers may allow you to put a portion of the purchase price on a credit card.

It's important to check with the dealer beforehand to see if they accept credit card payments and if there are any restrictions or fees associated with using a credit card.

Can You Pay For A Car Loan With A Rewards Checking Account?

A reward checking account allows its consumers to earn rewards and incentives when they meet certain monthly requirements. These requirements could include transactions like paying bills. The rewards can come in various forms like ATM refunds, cash back, iTunes credit, and shopping discounts.

Some banks also allow their users to use the rewards they earn to pay off their car loans. Check in with your bank or credit card provider’s terms to see if they allow bill payments to car loan providers.

One major roadblock to this mode of payment is that it is a multi-step process. It usually involves linking your checking account directly to your car loan provider, and this can lead to additional fees. It is important to weigh the pros and cons of this payment method before you proceed.

Is it Possible to Pay for Car Insurance with a Credit Card?

Yes, it is. Many insurance companies provide multiple payment options for their customers, including using a credit card. However, confirm with your insurance company that this mode of payment is accepted for car insurance. Also, keep in mind that you might have to pay some extra fees like convenience fees.

Is There a Recommended Down Payment You Should Make on Your Car?

There is no recommended amount to make for a car’s down payment. But, it’s generally a good idea to make a down payment of at least 20% of the car’s purchase price. This is not a benchmark value, and the trick is to try to put down as much as you can so you pay less on interest in the long run.

If you put down at least 20% of the car's price as a down payment, you can avoid losing money if the car's value drops over time.

If you don't have the cash for a 20% down payment, you can still acquire a car loan with a lower down payment. But, you may wind up paying more in interest and risk owing more on the car than it's worth (known as "negative equity") if its value declines rapidly.