This article was written by my sister, Ann Ganotis, who wanted to share her recent experience buying a used car from a dealership with a credit card. Ann is a business analyst in Brooklyn, NY and former insurance underwriter who worked at a car dealership during college.
Making large purchases on a credit card can be a great way to earn rewards. I recently purchased a car and paid with a credit card, rather than take the dealer’s financing plan or a bank loan. The options for payment at most car dealerships are either cash, paying with a cashier’s check (most dealers do not accept personal checks), taking the dealer’s financing, or paying with a credit card.
Paying With a Credit Card
There are multiple reasons it makes sense to pay with a credit card, as long as you will be able to pay the bill in full. Paying with actual cash can be impractical, and you will not get any rewards. If you decide to pay with a cashier’s check, many banks charge a small fee for issuing the check, and as with cash you will not get any rewards. If you pay with a credit card, however, you can earn airline miles, cash back, or other whatever type of reward your card offers. Since a car usually costs a significant amount of money, you’ll probably be earning a substantial reward. For example, if you are purchasing a $20,000 car and your card pays 1% cash back on your credit card, you earn $200 in cash back.
In my circumstance, the price of my car was just over $25,000. I put $10,000 on my Gold Delta Skymiles ® American Express and the remainder on my BankAmericard Cash Reward™ card. I ended up earning miles on my Sky Miles card, and got $165 dollars in cash rewards from the BankAmericard, since they give a 10% bonus for redeeming the rewards into a Bank of America checking account, like I did.
There are a few steps I recommend taking if you plan on doing this to make sure it goes smoothly. The most important thing to keep in mind, though, when buying a car on a credit card, is that you have the cash on hand to pay the credit card bill once it becomes due. If you do not, then it probably does not make sense to use a credit card, since it’s one of the more expensive forms of debt. By financing the car with the dealer, or getting a loan from your local credit union or bank, your interest rates would probably be cheaper than the interest rate on your credit card.
Check with your dealer
Check with your dealer to make sure they will let you pay on a credit card. Also, check to see what types of credit cards they accept.
2) Know your credit limits
Figure out what your credit limit is on each of your credit cards, and decide if you can pay the full amount on one card, or how to split the payment among multiple cards while maintaining a good utilization ratio. If you do not have a high enough limit to pay the full amount with credit cards, you could always put part of the balance on a credit card and then pay the rest with a cashier’s check or other form of payment.
You can also try contacting your credit card companies to ask for an increase on your credit limits. In my case I had a $12,000 limit on my American Express card and a $10,000 limit on my BankAmericard. I did not have enough credit to make the full purchase. I first contacted American Express to see if they would increase my credit line. They would not, because I had just received a credit limit increase within the last 6 months. I then called Bank of America and asked them to increase my credit line to $16,000. They increased it for me on the spot. They did say sometimes it takes a few days for the credit line increase to be approved, so make sure not to wait until the last minute to try this.
3) Mitigate risk of card denial
Notify your credit card companies that you will be making a large purchase. There is a chance when you make a large purchase out of your normal spending habits that it could be flagged as possibly fraudulent, and the transaction will be declined.
I first called Bank of America’s fraud department. They told me there was nothing they could do to stop the transaction from being declined, but gave me a number to call in case it was. I then called American Express and they told me it would be no problem, and that I would be able to make my purchase in confidence. I didn’t have any trouble with either card when I got to the dealership, and was able to drive home with a new car while earning cash back and airline miles!
Are you thinking about buying a car on a credit card? Now that you know how it works, take a moment to consider some alternatives: learn how getting an auto loan will affect your overall credit report .