Technically, you may be able to use a credit card to buy a car. You might be able to leverage credit card perks that earn points or save on interest. But, it’s a very high-risk move and only works for certain people in very specific financial circumstances.
I’ll start by saying there are much safer ways to finance a car purchase than using a credit card (like a car loan). Credit cards for car purchases aren’t common, and definitely aren’t straightforward.
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Before you read on, it’s important to know most car dealers won’t accept credit card payments, except possibly for a deposit. Regular people on Facebook Marketplace almost certainly won’t.
Let’s start with the main reasons using a credit card to buy a car is considered financially risky.
The problems with using a credit card to buy a car
There are two significant issues:
- Problem 1: Credit card repayments are self-motivated, rather than strictly set out by a loan provider. This could lead to a huge financial blowout.
- Problem 2: Interest rates are much higher than personal loans.
Car loans are generally a safer option because they’re designed for making regular repayments with relatively low interest (7.45% p.a. on average) over the loan term. Loan terms can be negotiated to suit your finances.
Credit cards don’t work the same way. Unless you pay off the entire balance each month, you’ll be charged interest (which is 20.99% p.a. on average). The interest will accrue rapidly on a large balance, and it can take many years and a lot more money to pay off compared to a car loan.
To show you what I mean, here’s an example comparison on a $10,000 car purchase and the same repayment amount each month:
Personal car loan
Interest Rate p.a.: 6.45%
Monthly Payment: $195.43
Time to Repay: 5 years
Total Paid: $11,725
Total Interest Paid: $1,725
Credit card
Interest Rate p.a.: 20.99%
Monthly Payment: $195.43
Time to Repay: 10 years, 10 months
Total Paid: $25,405
Total Interest Paid: $15,405
Unfortunately, credit cards come with other charges and limitations, too:
- Surcharges. A car dealership that accepts credit cards will likely pass on a surcharge of 1-2%. So, an $8000 car with a 1.5% surcharge will cost an extra $120.
- Credit limits: The price of the car often exceeds people’s credit card limit. Maxing out or overborrowing can hurt your credit score.
Could it work for you?
I won’t sugar-coat it: You need to be very, very financially trustworthy to benefit from using a credit card for a car purchase. Otherwise, you run the risk of paying far too much in interest, or hurting your credit score by missing repayments.
So, if you’re savvy and responsible, you could use a credit card to:/
- Earn rewards points. You need to make sure you’ll earn points from the merchant (the car seller), which might mean contacting your card issuer. Just remember you’ll be charged interest, which means you’re getting less value from your points.
- Pay for a cheap car. The cost of the car needs to be less than your credit limit. You can request a limit increase from your bank, but again, ask yourself if it’s a better option than a flexible car loan.
- Leverage a lower interest rate. Some credit cards may have interest rates lower than or similar to a car loan. However, remember there are still surcharges and credit limits to take into account.
- Use a 0% p.a. introductory offer. Check the fine print before you make a purchase, and work out how much you need to pay off each month to clear the balance before the 0% p.a. offer ends.
How to calculate and pay your monthly repayments using a 0% purchase offer
- Ignore the minimum repayment on your statement.
- Divide the credit card balance by the number of promotional interest-free months. For example, a $9000 balance paid off over 3 years would be $250 per month.
- Stick to your plan. You can set up automatic payments from your bank account so you don’t fall behind.
Even though there are cases where a credit card might work, it’s a risky play with the potential to rack up huge interest charges. Do your due diligence and make sure you understand how your credit card works before you head to the car dealer.
A Quick-Reference Guide to the Pros and Cons
| Feature | Personal Car Loan | Credit Card |
|---|---|---|
| Interest Rates | Generally lower, fixed rates (the average is 7.45% p.a.) | Generally much higher, variable rates (the average is 20.99% p.a.) |
| Repayment Terms | Structured, fixed terms (e.g., 5, 7, 10 years) | Flexible minimum repayments, but paying anything but the full amount will accrue interest |
| Late Fees | Typically a set fee for missed payments | Can accrue quickly, potentially leading to increased interest charges |
| Credit Limit | Specific to the loan amount for the car | Often lower than car prices; maxing out can negatively impact credit score |
| Acceptance by Sellers | Widely accepted by dealerships and private sellers | Rarely accepted by car dealerships for full amount; private sellers won’t accept |
| Surcharges | Not applicable | Dealerships typically pass on 1-2% surcharge |
| Debt Type | Structured, amortising debt | Revolving debt |
| Credit Score Impact | Positive if managed well, can be negative if payments are missed | Can be negative if maxed out or minimum payments are only made; positive if paid off quickly |
| Benefits | Lower interest costs, clear repayment schedule | Potential for rewards points, 0% intro offers (if paid off quickly), instant finance |
Yes, it’s possible to buy a car with a credit card in Australia, but there are significant limitations and a number of financial factors to consider. It’s generally not a straightforward or recommended method for financing a large purchase like a car.
Buying a car with a credit card is a niche strategy that only works for a very specific type of buyer. It is generally best for:
- Someone with a high-limit rewards card who can pay off the entire balance immediately with cash they already have.
- A buyer with a low-rate card who is purchasing an inexpensive car (under $5,000) and can pay it off within a short, interest-free period.
- A consumer who has a specific 0% interest on purchases offer they can leverage.
For most people, a traditional car loan or a secured personal loan is a much safer and more affordable option due to their lower interest rates and structured repayment plans.
