Can you really buy a car with a credit card? Here's what you should know

There is a lot of expense that one can incur when it comes to a vehicle. The usual way we get one of these is through a loan with a financial institution. But one concept that has been increasingly relevant for today's consumer is: can I purchase a vehicle with my credit card?

“Yes, it is possible to buy a car using a credit card, either fully or partially, depending on your credit limit and the dealership’s policy. While the convenience is tempting, it's important to understand the financial implications. If the outstanding amount is not paid in full by the due date, credit card interest rates as high as 3.35% per month can quickly add up, far exceeding the typical 9–10% per annum rate of a car loan,” says Sameer Mathur, Founder and Managing Director of Roinet Solution.

“Additionally, some dealerships may levy a surcharge on card transactions. So, unless the buyer is confident of repaying the amount within the billing cycle, it may be more prudent to explore structured financing options like auto loans or EMIs, he added.”

So let's delve further into this concept and flesh out the times it makes sense to pay with a credit card for a vehicle and when it does not.

Advantages of buying a card with credit card

• Instant rewards accumulation: Expensive purchases usually pay off significantly. If your card offers reward points, cash back, or miles, there may be substantial savings or travel benefits.
• Interest-free time period: Most credit cards offer a 45-50 day interest-free grace period. If you pay back your balance during this period we can delay payment for free.
• EMI conversion: This can also be the easiest option to convert your larger purchases into an EMI, since some credit cards have favourable interest rates and are flexible with regard to terms.
• Speed & convenience: Payment with a credit card means no late banking inquiries or lengthy loan processing.

Key consideration of buying a card with credit card

1. High interest rates: 40% interest rates per annum (and quite possibly as high as 36%), will apply if we do not pay off your total outstanding loan balance on time.
2. Impact on your credit score: It is easy to damage your credit rating if we miss a payment or exceed our credit limit.
3. Dealer surcharges: The 2-3% surcharge some auto dealers impose on credit card transactions could negate any rewards you receive.
4. Limited acceptance: Not all auto dealers accept credit or debit cards, especially for full payment, so always check first.
5. Spike in credit utilisation: A significant one-time expense can cause your utilisation for credit to increase significantly and impact your credit score.

Rewards: Can they justify the swap?

You might be able to get tens of thousands of points or miles for a single transaction when you purchase a car if you have a premium card such as Axis Magnus, HDFC Infinia, or SBI Elite. These points or miles can be redeemed for cashbacks, holidays or gift cards, this is an irresistible deal for savvy consumers. Just always remember to weigh the benefits with interest, and other charges.

In conclusion, although purchasing a car using a credit card isn’t always a bad option, it may not fit everyone's situation. However, if you don't think you can pay them back or just like to take advantage of short-term rewards, it may be best to consider traditional auto loans with set EMIs.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.