Car-buying on a credit card has risks

If you charge, pay it back quickly

Buying a car is an expensive endeavor.

Because cars are so costly, paying for a car with a credit card may seem tempting so you can earn a lot of credit-card rewards points.

But whether you can actually pay for a car with a credit card depends on your situation.

Whether you can charge your car will depend upon the policies of the dealer you buy from.

Most dealers do accept credit cards, but cap the amount you can pay on your card.

When we bought my husband’s car, we were capped at charging $5,000 of it, which is a common limit.

Some dealers let you charge the full cost of a car

A small minority of dealers will accept a credit card for the whole amount.

You’re more likely to find this when using a credit card affiliated with the car maker, such as buying a Lexus car with a Lexus credit card.

If your credit card has an auto purchasing program – as American Express does – then buying through that program maximizes your chances the dealer will accept your card as payment for the entire purchase.

For most dealers, however, strict caps are in place because of the fees credit card processors charge.

Your dealer doesn’t want to be stuck with a 2 percent to 3 percent fee on the entire purchase price of the vehicle, so they’ll impose limits on what you charge because of it.

Another option for buying a car won’t get you rewards points, but it possibly could make your car purchase cheaper.

That option is to use a balance transfer to pay for your car.

Many credit-card companies provide balance-transfer checks.

While technically intended to allow you to pay off existing debt and transfer the balance to a new card, the checks can be deposited into your bank account and used for any purpose – including buying a car.

In fact, I purchased my car using balance-transfer checks when I was in law school.

The benefit of using balance-transfer checks is that most cards offer a special promotional zero percent interest rate for your transferred balance.

This promotional rate typically lasts anywhere from six months to 18 months.

In my case, it lasted 12 months. That gave me 12 months to pay off my car at 0 percent interest, which was a much better deal than an auto loan.

If you’re going to use balance-transfer checks, be aware that some cards charge a fee – typically of about 3 percent – to transfer your balance.

Still, that fee could still be cheaper than a car loan.

You also need to have enough available credit to pay for the car, and be prepared that your interest rate will increase substantially if you haven’t paid off the card by the time the promotional rate expires.

Don’t charge the car unless you’ll pay it back

Whether you charge some or all of your car on a card to get rewards points or use a balance-transfer offer to put your car on your card and pay off what you owe at zero percent interest, it is imperative you only buy a car on a card if you can pay back the card.

The regular interest rate on a credit card is going to be far higher than the interest rate on an auto loan.

And any points you might earn on the transaction will be worth much less than the interest you have to pay.

Have the money set aside to pay off the card when you get your statement if you’re charging it, or have a solid plan to pay off the transferred balance before the promotional rate ends.

If you are able to find a dealer who will allow you to charge your car, and if you can pay back the amount you charge when the bill is due, buying a car with a credit card can be a really smart way to earn a lot of rewards.

Just be sure you don’t charge a car and end up paying a fortune in credit-card interest if you can’t pay back the borrowed money right away.