Paying Your Car Bill With a Credit Card: Is It a Good Idea?

Paying for your car loan or lease with a credit card might seem like a convenient way to earn rewards or take advantage of an intro 0% APR offer. But this strategy comes with some big risks that you need to consider carefully before swiping that plastic. In this comprehensive guide, we’ll walk through the pros and cons, fees involved, and potential impacts to your credit so you can decide if putting your car bill on a credit card makes sense for your situation

How to Pay for a Car With a Credit Card

First, let’s go over the main ways you can pay for a car with a credit card:

• At the dealership – Some dealers may allow you to charge the entire purchase price to a credit card. This only works if you have excellent credit and high enough limits. Expect to pay a 2-3% convenience fee.

• 0% intro APR card – Apply for a card with a 0% introductory APR on purchases Make the monthly payments interest-free during the intro period, typically 12-21 months. Miss a payment and you’ll lose the 0% rate

• Balance transfer – Transfer the auto loan balance to a 0% APR balance transfer card. Make payments for 12-21 months without interest, but you’ll pay a 3-5% balance transfer fee.

• Cash advance – Withdraw cash from your credit card at an ATM to make the payment. Extremely expensive due to fees and 20%+ interest rates.

• Money transfer – Use a service like Western Union to charge your credit card and send the funds to your auto lender. Risks treated as a cash advance.

As you can see, there are workarounds but no easy or direct way to pay a car bill with plastic. Next let’s go over the potential pros and cons.

Potential Pros of Using a Credit Card

• Earn rewards – If your dealer accepts credit cards, you could earn 1-5% back in rewards on a large purchase.

• Enjoy 0% APR intro period – Make interest-free payments during the intro 0% purchase or balance transfer period.

• Improve cash flow – If money is tight, charging the purchase may help conserve cash in the short term.

• Build credit – Responsible use can demonstrate you can handle large credit lines.

However, there are also some serious drawbacks and risks to consider before paying your auto loan with a card.

Potential Cons of Using a Credit Card

• High fees – Expect to pay 2-5% convenience fees to dealers or balance transfer fees to the card issuer.

• High interest rates – If you carry a balance past the 0% intro period, interest of 15-25%+ will add up quickly.

• Balloon payments – If you can’t pay off the balance when the intro period ends, you’ll owe a huge lump sum.

• Credit damage – Your utilization rate will spike, likely lowering your credit score temporarily.

• Credit card debt – Taking on a large balance makes it easier to overspend and fall into serious credit card debt.

As you can see, the risks and costs often outweigh the potential benefits of charging your car payment. But in very specific circumstances it can make sense if used responsibly.

When Does It Make Sense to Use a Credit Card?

Here are some scenarios when paying your auto bill with plastic might be reasonable:

• You have excellent credit (720+ score)

• Your income is very stable

• You qualify for a 0% APR card with a long intro period (18+ months)

• You will pay off the balance in full during the intro period

• You have other low interest debt you can transfer to the 0% card

However, due to the many drawbacks, it only makes sense for a small segment of borrowers with stellar credit who are very confident they can pay off the entire balance quickly. For most, the risks outweigh any rewards or intro APR incentives.

Tips for Using a Credit Card Responsibly

If you do decide to pay your car bill with a credit card, here are some tips to avoid problems:

• Make payments on time every month – set up autopay if possible.

• Pay more than the minimum when you can to pay off the balance faster.

• Have a plan to pay off the full balance before the intro period ends.

• Avoid charging anything else to that card, so you can focus on paying off the auto loan balance.

• Be prepared to make a big lump sum payment if you can’t pay off the balance in time.

• Have a backup plan you can use if you lose your income and can’t make the payments.

The Impact on Your Credit Score

One of the biggest concerns with charging a car to a credit card is the impact to your credit. Here’s what can happen:

• Your credit utilization rate will spike. Experts recommend keeping this below 30%, but even lower is better.

• As a result, your credit score can drop by 10-50 points temporarily.

• Too many inquiries from applying for new credit cards can also ding your score a few points.

However, as you pay down the balance responsibly, your score should rebound within 6 months or so. A temporary drop is worth it only if you are sure you can pay off the debt during the intro 0% APR period.

Alternatives to Paying With a Credit Card

Given the risks and fees involved, you may want to consider alternative options instead of charging your car to credit:

• If approved, transfer the balance to a lower interest personal loan.

• See if you qualify to refinance your auto loan to a lower rate.

• Set up automatic payments from your checking account to avoid missed payments.

• Pay a little extra each month to pay the loan off faster.

• Build an emergency fund to avoid relying on credit cards during financial hardship.

The Bottom Line

While it is possible to charge your auto loan payment to a credit card, it should generally be avoided in most situations due to the risks, fees, and potential credit damage. Only those with exceptional credit should consider it, and even then, great caution needs to be taken to pay off the balance responsibly. For most of us, it’s better and safer to stick to traditional payment methods. But evaluate your specific situation carefully before swiping that card.