Can You Use a Credit Card For a Down Payment On a Car?

This week’s car loan post was prompted by a customer question we heard last week. A customer wanted to make a down payment on her credit card as she had just gotten a 0% card with a large available balance. So can you make a car down payment with a credit card? Should you?

Most people’s first thought when asked about using a credit card for a down payment is no. Typically, credit cards come with high-interest rates that don’t make financial sense for down payments. However, this customer had a 0% deal on purchases as well as balance transfers so was in a different position.

Can You Use a Credit Card for a Down Payment?

In theory, you can make a car down payment with a credit card. However, not all dealers will allow this as they have to pay merchant fees on all credit card transactions. Depending on the size of the down payment, the type of credit card used, and the overall cost of the car, not all dealerships will accept this type of down payment.

Anything is possible in the auto industry but before setting your heart on a particular car, make sure to ask the dealership if they would be happy with you making the down payment using your credit card.

Should You Use a Credit Card for a Down Payment?

For the vast majority of situations, we would say it is definitely not advisable to make a car down payment with a credit card. There are exceptions though.

In our customer’s case, she had a 0% deal on purchases so making a down payment would not cost her anything in interest or fees. As long as she paid off the balance before that interest-free period ended that is!

She could benefit from extra insurance through her credit card and any loyalty rewards for using the card to spend a certain amount of money within the year.

In all other situations, the prevailing credit card interest rate would make this kind of transaction very expensive indeed. Credit card interest rates vary but are generally between 18% and 30% APR. That is a very expensive source of credit!

For example, if you put down a $10,000 down payment on a car with a credit card that charges 18.9% (one of the lower rates) and paid back $350 per month, it would take just over three years to pay off and would cost $3,015 in interest assuming that rate didn’t change.

That’s just for the down payment!

It would very likely be cheaper to make a smaller down payment or no down payment at all. Depending on your credit score and circumstances, you could drastically lower the amount of interest paid with a competitive car loan that covered more of the cost.

If you need help or would like to explore your own options for car loans, Car Nation Canada can help. Visit us to see what we can do for you!

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