Using A Credit Card To Buy A Car

BMW X1 2013The last five cars I’ve owned have all been purchased by cashier’s checks. I loathe going into debt on an asset that is guaranteed to depreciate. In fact, I dislike buying anything that is guaranteed to depreciate!

I stopped by the BMW dealer on the way home from golf one day and checked out their new 650i coupe series. If someone could figure out a way to bottle that wonderful new car smell, they’d make millions off fanatics like me!

Given this particular 650i coupe was priced at $104,000, I decided to check out the more moderately priced 2014 X3, 2.8 litre engine SUV for $48,000.  Same new car smell for half the price. Score!

CREDIT CARD LIMITS FOR CARS

Out of curiosity, I asked the saleswoman whether I can put the car on my credit card which has a $50,000 limit.  She said, “Nope!”  The most I can charge on the card is $3,000  What the heck is the point of carrying a credit card if I can’t charge a BMW on it? Gee whiz!

In actuality, the $3,000 limit is a good thing since I’d be tempted to buy a new car every single year! I asked her why the $3,000 limit?  And she responded, “Fees, those darn fees.”  Credit cards charge 1-2% fees on average for every single purchase.  2% on $50,000 is $1,000 out the door.  Hey, kinda like PayPal fees, but not as bad!

I then told the saleswoman, “What if I just buy the car for 1% more than asking price, then can I use a credit card?”  She thought about it for a moment and still declined. Of course I would prefer not to pay more than I have to for anything. I just thought this would be an interesting solution.

Our policy, no matter what your credit limit is, is still $3,000 maximum. The reason is we don’t want people charging their downpayment, which then defeats the purpose of a downpayment.  We don’t want a situation where a buyer purchases a car on credit, totals the car, and can’t pay either the payment or the costs necessary to fix the car!  A buyer needs to have skin in the game, that’s our bank’s policy.” explained the saleswoman.

Wait, so she’s saying I can’t borrow money to pay for a down payment to borrow more money? What the hell kind of dealership / country is this anyway? I thought we can do what the government and millions of Americans do everyday and take from one, spend it on ourselves, and never have to pay it back!

CREDIT CARD LIMITS EVERYWHERE

The $3,000 credit card limit policy is ubiquitous. I called Mercedes, Audi, and Range Rover, and they all said the most someone can charge to purchase a car is $3,000. The rest must be financed by their own bank or paid in cash.

I was really looking forward to charging $50,000 for the X3 and getting enough rebate points for a round-trip ticket to Europe.  Alas, I will settle for good old Moose, keep the $50,000 and have the optionality of buying 100 round-trip tickets to Hawaii instead.

RECOMMENDATIONS

Barclaycard World Master Card: If you are an avid traveler and looking for a travel rewards credit card, you can sign up for the Barclaycard Arrival World MasterCard with no annual fee with double the points on travel and dining and 20,000 signup miles ($200 value). Barclaycard offers $200,000 in automatic travel accident insurance, reimbursement for expenses if your bag is lost or delayed, trip cancellation coverage, and $0 fraud liability.

Check for lower insurance rates. Auto insurance is the second biggest expense to owning your car. Esurance is the leading online market place to help you find the most affordable and reliable auto insurance. They get you comparison quotes to make sure you’re getting the best deal. You can easily purchase auto insurance straight from their website if you like what you see. It is very important that everyone gets at least basic liability car insurance. You can total your car and be fine. But if you total someone else’s car and injure them, they can go after you for ALL your assets and wipe you out! Check for a better auto insurance quote via Esurance today.

Check Your Credit Score: Take a moment to check your free TransUnion credit score through GoFreeCredit.com, a company I trust. 30% of credit reports have errors, which could put a serious hamper on your refinancing or new loan borrowing abilities. I had a $8 late payment I didn’t even know I owed crush my score by 100 points come up during my last refinance. The average credit score for rejected mortgage borrowers has risen to 729 due to more stringent lending requirements. Do you know what your score is?

Updated: 5/2014

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

You can sign up to receive his articles via email or by RSS. Sam also sends out a private quarterly newsletter with information on where he's investing his money and more sensitive information.

Subscribe To Private Newsletter

Comments

  1. Money Beagle says

    That’s really interesting but it probably makes a lot of sense. Many people wouldn’t be using the card just for the points, but they’d probably use it as a way to get in over their heads. I wonder how many other places might have limits. We’ll need a new roof in a couple of years and I was already thinking about whether I’d be able to charge it on my cash back card. It’s probably going to run us around $4,000 which would yield us $40 or so if we were able to use the card, but now I wonder if I’ll be able to.

    • 4autoinsurancequote says

      Pretty much EVERY car dealership has limits. I’ve tried to buy cars with credit cards before too. I have a $30,000 limit on my visa and would love to get them points for a free plane ticket! but alas, no car dealer wants to swipe my card =(

  2. Everyday Tips says

    There are lots of things I have wanted to put on my credit card, but then I would have to pay a ridiculous fee, so did not. (Tuition being one of them.) I have put some major home repairs on my credit card though. When someone stole my credit card number they charged a pretty expensive pool to my card without any problems!

    If too hate going into debt for a depreciating asset. Kind of like going into debt for a house that just drops in value every year…(just got my house assessment the other day…)

    • Financial Samurai says

      Sorry about the houe assessment :( I vigorously fought the county to lower my house assessment by 15% for this year’s tax bill and won! If it was up to me, I’d have them assess my house at $1 dollar.

      What’s the fee to charge the tuition? That’s what I wanted to do. Huge fee to pay property tax as well so I don’t.

  3. Michael says

    I had been thinking about doing the same thing – charging a new car – but it seems like you did the research for me. What a bummer. Guess it will have to be cash.

  4. Daisy says

    I wanted to put my car on my card, but didn’t. I put my down payment on my card but that’s it. I get rebate points – 1% for every dollar I spend, so that would have put some awesome cash in my pocket.
    The most Ive put on my card is a $3000 dental bill of the boyfriends.

  5. Mark says

    I found your site because of your smart comments on passionista blogs asking them to be accountable by showing the amount of money they make. I loved that… it’s what all of those bloggers should be doing, especially since they’re telling you that you should quit your job.

    And in respect to the post, I never thought about buying a car with a CC. You’d be able to rack up some serious points that way, that’s for sure. But does sound a bit counter-intuitive to the whole down payment idea.

  6. Sunil l Expedited Wealth Building through Entrepreneurship says

    last i bought a car i was allowed to charge 2k on the card. however, my cousin in los angeles purchased his range rover all on his business credit card and paid it off the following month to get the airline miles. the difference is that he paid MSRP + bells and whistles, while i paid dealer invoice minus everything else (mfg rebates, dealer incentives, etc)

  7. Rachel says

    Sam my memory on this is a bit hazy as it happened several years ago, but when I worked in auto finance I seem to remember a customer using those courtesy checks that American Express sends out to pay off his car. You might look into that angle to see if that would work for you. I’m not even sure if the credit card companies are still sending out those courtesy checks any more.

    • funancials says

      Oh they’re sending them out! I just got one for 1.99% for the 1st year followed by 18% thereafter. The largest I’ve charged was $4000 for lasik. I paid it off a few days later and ultimately saved $55 with the rewards I received.

  8. Maria@moneyprinciple says

    I was just about to say ‘yes, but it was a Smart car which costs considerably less than the ones you looked at’. Then John reminded me that we bought it on a debit not credit card. It seems that the limit of $3000 is sensible for the vendors.

  9. Matt says

    We put our most recent car purchase on a credit card. Our Craigslist special 2001 Suburban for $6200 from a private party seller. It was very easy to go to the credit union and get a cashiers check with the funds drawn from our credit card. A one time fee of $5! Our interest rate on our credit card is locked at 5.9% which is the same rate they were offering on auto loans for a car that old. After we sold our 1999 Durango, we put the proceeds back on the card. So, we essentially only financed the difference. By using the credit card funds rather than an auto loan, we didn’t have to fool with the bank putting a lien on the title and requiring what they think is sufficient insurance. I plan to do future car purchases this exact same way if I don’t have enough cash to pay the entire purchase price up front.

      • Matt says

        My credit card through my local credit union has a locked rate of 5.9% for both charges and cash advances! Awesome deal, I know! At the time, they also offered a 3.9% balance transfer which we took advantage of. They no longer offer these rates, but we are locked in.

  10. Denise @ The Single Saver says

    Oh my gosh, Sam, I had nearly the exact same conversation when I bought my beloved Volvo wagon several years back (which, though loved, doesn’t have a cool name like Moose). I had the cash and wanted to put it on my credit card for the points but was told no.

    Instead, I financed the car at a low rate as I would make more keeping the money in investments and paying the small interest rate then to pay cash. Perhaps a smart decision when it comes to saving/making the most money, but I will never do it again… I hate making these payments even if the money has been allocated from the beginning. Never again!

  11. krantcents says

    I have put the price of a cruise on a credit card (as much as $10K for 2). I still pay it off when the bill comes. I wonder if you could use the cash advance checks to pay for the car? That may be one way around the limit. I could use my line of credit to buy the car (lower interest). Interestly, I am having more trouble figuring what car to buy than how to pay for it.

  12. Dollar Disciple says

    One of my mentors purchased the first few of his rental properties on credit cards. This was “back in the day” when you could borrow the down payment. It worked out for him but it sounds crazy now!

  13. 20's Finances says

    It’s just like paypal indeed! The most I’ve spend is maybe 2k? I would love to put more items on my credit card (like rent) to get the rewards since I pay it off each month, but I can’t.

  14. retirebyforty says

    Can’t you use a check from the credit card company? Those things they sent in the mail?
    I never charge more than 3k so I don’t know. The most I spent is probably close to 2k for 2 tickets to oversea destinations.

  15. Daniel says

    Recently, I paid $7,000 toward student loans, fee free. I got 1% back, which is cool and just further lowers the effective interest rate I paid.

    I could have done more, I wonder if they would have let me pay with whatever my credit limit is?

  16. Dana says

    We had to purchase a new a/c unit for our home and paid for duct cleaning etc. to go along with it. Total price was about $6,000 which is the most we had ever put on the credit card. Of course we paid the bill off in full when it arrived……

  17. Dannielle @ Odd Cents says

    The most that I’ve ever charged on my credit card is $1500 USD and that was for a trip that I took a few years back. When the bill came in, my eyes popped and I got a tingling at the back of my neck. I can’t imagine charging more than that. It would have to be a case where I have the money saved for the purchase.

  18. Money Reasons says

    hehe, I tried to do this too for my wife’s car. The wouldn’t let me either. I started talking about how great my credit is but they wouldn’t budge…

    It’s good to hear that someone else tried to do the same thing! :)

    Of course I had the money at home waiting to pay off the credit card bill when it came in… I just wanted the instant credit card discount.

  19. Car Negotiation Coach says

    Hey Sam, I’d put a down payment on a credit card any time possible. Points, baby! I’ve actually not heard of being able to put a full 3k on a card though…..maybe that’s just for luxury cars. It’s usually a lot lower like 1k.

    I actually put my wedding on a Marriott credit card….and it was at a Marriott, so points galore. Although lesson learned, they cap out the 3/1 bonus and total points at 25k for banquets and such…..so unfortunately everything you spend over 8kish doesn’t get the bonus (or something along those lines…..I just remember be happy and mad at the same time).

  20. Brandy says

    We bought a BMW motorcycle in October and we had the money in savings to pay for it but they let us put the full amount on our credit card (well over 3k). I was shocked but they let us do it and we got the free rewards. :)

  21. Robert @ The College Investor says

    That’s the experience I’ve had twice as well. I wanted to pay for it all on my card to get the rewards, but the most I could do was $3,000. I paid that on the card and ended up writin a check for the rest. The dealership was nice and that they didn’t even need a cashiers check, a personal check was fine!

  22. JT says

    You can buy a car at credit card interest rates from my friends over at Credit Acceptance Corp. They’ll finance anything newer than 15 years and expect that their average borrower pay back less than 80% of the purchase price. You can simulate what it’d be like to purchase one with a credit card and enjoy interest rates as low as 20%! Bargain.

    Most expensive thing I ever put on a card was probably tuition. I’ve stopped doing that since the school now wants a 3%+ convenience fee.

  23. WorkSaveLive says

    I love the X3! Well, I really like the X5 more…the front end on the X3 is a little too long for me. The design is a little weird – granted I haven’t seen a 2012 yet, so maybe they’ve fixed the problem. :)

    I’d never thought about putting a car on a credit card. That would be some serious cash-back/rewards.

    I think the most I ever put on a CC was $2000. lol. Yep, I’m a high roller…watch out.

  24. My Own Advisor says

    We put most of our trip to Italy a few years ago, on our CC. That 3-week trip cost about $7,000. That’s the most we’ve put on our CC’s.

    We paid the trip off, a month later :)

    That X3 looks hot.

    We drive a 2012 Kia Soul.

  25. BE @ BusyExecutiveMoneyBlog says

    Interesting concept indeed. I don’t have any credit cards anymore after closing all to go to an “all cash” lifestyle. However, I do expect the next vehicle I buy will be a swipe of the debit card! Both of our cars are 5 years old. Hoping to get another 5 out of them though!

    • Financial Samurai says

      Good stuff BE. Have you found your spending consumption to decrease drastically since going all cash? I have a large January bill this year, and am thinking of going cold turkey for a month.

  26. Paul @ Make Money Make Cents says

    I always wanted to do that, bummer you can’t. There shouldnt be a problem with using a courtesy check from one of your credit cards, but i am pretty sure you wont get the points, just the potentially low rate (make sure not to miss a payment!). I am shocked that a bank would give a locked rate for a cash advance, thats great but worth triple checking. Lastly, BE make sure to call your bank and find out your daily limit on that debit card. They usually place a 3-5k limit on them.

  27. Evan says

    Hmm I never really thought about it but you think they’d want the money up front via AMEX vs over 5 years with a finance (or the financing company HAS to take some portion, right?)

  28. Money Infant says

    Yeah that’s a shame, you could have racked up one heck of a lot of points just by paying with the card. It’s a new advertising ploy: “Get a free flight with every car purchase”!

  29. Andi B. says

    I actually knew a guy that used credit card balance transfers to only pay 0% on his auto loan. This was 15 years ago though, when the balance transfer fee was very tiny.

  30. joe says

    I paid 12,000 Fed tax and 3000 state tax this Dec. I got dinged about 400 in fees. But i did it so that i could get a free British Airways travel together voucher. i dont know many people who pays taxes with their credit cards… but now i can take my wife along in First class to Europe for about 140k in Ba miles and some ridiculous BA surcharge fees…
    Anyways I still think its worth paying taxes with your credit card.. if you manage to get bonus points/miles/vouchers for those extra points

  31. Monica says

    My first reaction to the title was What? That’s crazy! However, after reading the post I thought it was an interesting idea and wondered why I’d never thought of it before. We’ve received those courtesy checks from the credit card companies, and I just shred them because of the hefty fees. It was cool reading all the comments with ideas on how to get the most out of your credit card rewards, I guess I need to start thinking outside the box!

  32. Charles says

    I asked the dealer if I can use my credit card to pay for down payment. He said “sure, how much?” I wasn’t really thinking and said “$3,000″ and he proceeded to complete the transaction. He never once mentioned the credit card limit, perhaps because the situation didn’t call for it, i’m not sure. I was happy nonetheless since I got 1% back in credit card rewards.

  33. Eric says

    I had never realized there could be a limit on a credit card charge that was lower than my credit limit. I wonder if there is leniency for used cars? If I wanted to buy a $5,000 used car on my card with a $20,000 limit, I could easily afford the replacement cost.

  34. MoneySmartGuides says

    I bought a used car at a Mom and Pop dealer. They would only allow me to charge $500 on my credit card for the $5,000 car. I did end up putting everything on my credit card though. I called up the credit card company and wasn’t charged a cash advance fee. After the transaction went through, I transferred the balance to another card that offered 0% for two years and didn’t charge a transfer fee (this was back in the day). Then, I did the math to determine what it took to pay off the balance in two years and did that.

    It was a bit of work, but was worth it for me.

  35. Melissa says

    This last week was probably the most expensive week I’ve EVER had for my poor credit card. I actually did just buy a car, so I put $2500 of the downpayment on my credit card (the max, to get the points; the rest I paid for with a certified cheque), AND I prepaid my car insurance for the year, also to get the points since paying monthly by credit card wasn’t an option, which was another $2000. (Car insurance in a large city is EXPENSIVE.)

    I would have put the whole downpayment on my credit card if they’d let me. Of course, I would have paid it back immediately, since I had the cash on hand, but I can see how it’s good that they have rules like that for people who aren’t quite as responsible.

    Beyond that, the most expensive thing I’ve ever charged was a computer.

    • Financial Samurai says

      Wow… that’s the most I’ve ever heard, and for a Honda dealership no less where the ASP is lower. Go get em! Just make sure they don’t rape you on the selling price!

  36. Ron says

    I was reading this thread because i’m about to buy a new car. I have financing but want to use 2500 from my new Discover card for the down payment. I have 0% apr for the first 15 months of the card and thought this might be a smart way to go. Keep reading differing opionions on whether or not to use the cc for the downpayment. Any thoughts?

  37. Brett says

    Bought a used car in 2011 and used a BoA courtesy check for 12 months at 0%. Also paid a $90 fee (3% of the total on the check) but I figured it was better than using the money in the bank. I kept that card out of my wallet so I didn’t use it for anything else, and just paid a set amount every month until it was paid off. Now that card sits at a $0 balance because I hate BoA, but they do love to send courtesy checks.

    I’m thinking about buying a new car soon and might use my Chase card to get reward points. That is assuming they’ll let me charge $5000 or more.

    • Financial Samurai says

      That’s a pretty good idea actually Brett! I get those 0% courtesy checks on occasion as well. Might as well use them if we are responsible enough to pay it off BEFORE the 0% rate expires!

  38. CC says

    If you look at the credit card agreement- most if not all prohibit you from buying real estate or vehicles with the card or the courtesy checks they send. If you do this and they pick up on it (and they will) they usually demand immediate payment for breach of contract- no matter what your credit limit may be. Know the rules before doing something stupid- ignorance will not absolve you from the breach of contract- plus they can sue you if they decide to pursue the matter…

  39. PB says

    A spokesman for Visa e-mailed me this response, which mirrors MasterCard’s position:
    “U.S. merchants must follow basic card acceptance rules for all Visa transactions. Visa’s rules do not allow merchants to impose a maximum transaction amount as a condition for honoring a Visa card. Our rules require merchants to always honor valid Visa cards regardless of purchase amount — large or small.”

    • Financial Samurai says

      Very interesting!

      But, the decision is ultimately up to the car retailer because 1) it costs them money if a consumer pays by credit card (good for consumer, bad for car dealer), and 2) the car dealer has to weight the risk of the veracity of the credit card, credit, potential dispute, etc.

      Of course the credit card companies wants consumers to put $50,000 on their cards. More fees!

  40. Kelly says

    Your experience is not the norm. I purchased a used vehicle at over $10,000.00 on two credit cards and the Toyota dealership didn’t even blink an eye when they said “YES!” I also bought a $6,000.00 sport bike a few years ago on a credit card purchase. All I can say is go somewhere else and maybe call around before you go to the dealership.

  41. Jon Mino says

    Several years ago, I went to AAA and bought 20K in Travelers Cheques. I received 1.5% back in cash from my American Express ($150). I then deposited the Cheques directly in my account. Then wrote the dealership a check for 20K. I paid off the Credit Card the next month. Was it worth $150 tax free for a short drive across town. I would say, Yes.

    PS: AAA has since changed their policies to thwart this. American Express was the only credit card that did not treat Travelers Cheques and cash advances. AAA no longer allows you to use American Express for this reason.

  42. Ap999 says

    When I bought my motorcycle they allowed me to charge 2k to my credit card. I would of charged the whole 8k if they let me. After all I was ready to pay with a check in full. Better to take advantage of the points if your intent is always to pay the CC bill in full. If your carrying a balance then your probably not getting the points worth because of interest racking up.

  43. Komrad says

    I only spend money I have, but I use rewards card to get a bonus income while spending money that I would have spent anyway. It makes a huge amount of sense to me to save up the full cost of the car in a “car fund”, charge as much as possible of the price to a rewards card, and then use the cash you saved up to pay off the card and complete the car purchase. When you later get the reward, you can put that into retirement or towards something else that you are saving for.

  44. NegotiatorRogerSmith says

    Um… just show them the cash… hand them the card to swipe. Tell them to hold on to the car until the transaction posts, then have them deliver the car… what kinda ratty dealerships are you going to? You get your points, they have peace of mind the car’s paid for, and they can eat the processing fee — it’s a cost of doing business, and they can’t set mins or maxs regardless of their “policy,” as it violates their merchant agreement (a privilege) with Visa, MC, AMEX, Discover, JCB, etc.

    I have a policy, too: I don’t negotiate with retarded college drop-out salespeople who no absolutely NOTHING about finance; otherwise, they’d be working in finance. Salespeople are completely worthless intermediaries. If you do your homework, like a NON-college dropout, and have the $$$, there’s no argument.

    They sold you on “no,” whereas you should’ve sold them on “yes, or go fuck yourself.”

Leave a Reply

Your email address will not be published. Required fields are marked *