Can I Buy a Car with a Credit Card

There are various ways through which you can buy a car using a credit card. You can either make the purchase directly, use it for a down payment or cover monthly EMIs. Here are some key details:

• Make a Car Purchase Directly

Here are the steps to buy a car with a credit card directly:

1. Check with Your Credit Card Issuer: The first step to buying a car with a credit card starts with checking your credit card limit. 

2. Find a Car Dealer: As most car dealers do not accept a credit card to buy a car, you need to find a dealer who does so. After finding the right dealer, you need to communicate with them about your credit card usage to purchase the car.

3. Select a Car: After you have informed the dealer about paying with a credit card, you need to decide upon the right car as per your needs and preferences. 

4. Consider the Risks: Paying for a car with a credit card can impact your credit score as the amount is generally high. If your score is fair or average, the rewards and offers available to you may not last long enough for you to take full advantage of them. After considering these risks, you should carefully decide whether to use a credit card for your car expenses.

5. Plan to Pay the Balance on Time: To assess the costs you will need to repay, you can use a calculator. Once you are aware of all the costs, you must create a comprehensive plan to pay off your debt and credit card balance, including the interest rates.

6. Make payment: After you have landed on the decision to buy a car with a credit card, pay the required amount and take ownership of the car. 

• Use it for Down Payments

When deciding to make a payment using your credit card, the first option is to pay for a down payment with the card. Many dealers offer the option to pay an upfront cost to book or secure ownership. You can use a credit card to pay the down payment easily.

• Use it for EMI Payments

If you have already arranged for the down payment of the car, you can opt to pay the car EMIs every month. This will help you manage your cash flow and keep funds available for other expenses. However, you must inform the car dealer of the payment option you choose.

Understand with an Example

Suppose that the car you are planning to buy costs ₹7 Lakhs. Let’s go ahead and understand how you can buy it with the help of a credit card.

• Credit limit of your card: ₹6 Lakhs

• Downpayment paid using your credit card: ₹1.5 Lakhs

• Remaining ₹5.5 Lakhs is financed at 18% per annum for 4 years (48 months)

• EMI amount: ₹16,159 (approx); total repayment amount: ₹7.7 Lakhs

 

Credit card billing:

Your billing cycle ends on the 12th of the month, with payment due by the 28th. Since you make the down payment using your credit card on the 8th, it appears in your current statement. 

 

Cashback on spends:

Your credit card offers 2% cashback on spends. When you clear ₹1.5 Lakhs before the due date, you earn ₹3,000 cashback. Now, let’s assume that the dealer charges a 1.5% transaction fee, which goes up to ₹2,250. You save ₹750 on this transaction.

 

For EMIs, you set up an auto-payment on the 14th. Over 48 months, you pay ₹7.76 Lakhs (₹16,159 × 48). Assuming your salary is credited on the 1st, you clear the balance on time and avoid interest. If your credit card offers rewards on EMI transactions, you may earn additional benefits based on your issuer’s policy.

To buy a car with a credit card, one of the most important factors you must check is the interest rate. You should go ahead with an issuer that has a low interest rate and other charges. Here are some additional tips when buying a car with a credit card:

• If you have access to enough funds, it is better to pay off your debts quickly. The longer your EMI is retained, the more interest and expenses increase. 

• It is always preferable to use a rewards credit card. This way, you can make your purchase rewarding by spending a significant amount and getting extra benefits in exchange.

• In addition to the interest rates, you must be aware of the additional costs, such as annual fees for credit cards. These recurring costs can add to your final payable amount, increasing your debt. 

• Always repay your instalments on time as late payments attract late payment charges and interest. 

• Make sure you can comfortably manage monthly payments, including interest, to avoid financial strain.

There are numerous benefits when buying a car using a payment method as a credit card, such as convenience and flexibility. Some of its benefits include:

• If you have a high credit card limit, it could be a convenient way to purchase the car without getting an auto loan or using your savings.

• Credit card payment offers convenience at its best. Whether you are buying a car online or offline, you can make transactions through credit cards effortlessly.

• Flexible EMI options are available with most credit cards. You can choose a flexible EMI value and repayment tenor. 

• Credit cards offer additional security features which protect you from credit misuse or fraudulent transactions.

• One of the primary benefits of using a credit card for hefty expenses is rewards and cashback. Many credit cards offer special rewards on reaching specific spending milestones, which you can achieve when buying a car. 

• Some cards offer spending bonuses, which can be lucrative when buying a car.

• Paying off the full balance by the due date can help you avoid high-interest charges.

• If the dealer accepts credit cards, you can bypass auto loan processing and approval delays.

• Using a credit card helps maintain liquidity while delaying actual cash outflow.

• Some dealers may charge extra fees due to Merchant Discount Rate (MDR) charges.

Purchasing a car with a credit card can be convenient but requires careful consideration of financial implications. Consider the following factors to decide whether using your card to buy a car is a smart move for you:

0% Intro APR Advantage

A credit card with a 0% intro Annual Percentage Rate (APR) can help you avoid interest for a set period, typically 12–18 months. However, if you fail to pay the balance before the promotional period ends, high-interest rates will apply.

Impact on Credit Utilisation

A large charge can increase your credit utilization ratio, which may harm your credit score. High utilization can signal financial strain to lenders. Ensure you have a solid repayment plan before proceeding.

Earning Rewards

Using a credit card for the purchase could help you earn significant rewards or meet a welcome bonus spending requirement. However, the benefits are only worthwhile if you can pay off the balance immediately to avoid interest charges.

 

Assess your financial capacity and repayment strategy before using a credit card to buy a car