When buying a car with bad credit, expect to provide a 20% down payment for a new car and 10% for a used one.1 But remember that the amount you provide for a down payment can significantly affect the terms of your loan.
Borrowers with limited funds for a down payment sometimes wonder whether they can use a credit card to cover it. Keep reading to learn whether it’s a good idea to use your credit card to cover the cost of a down payment for a car.
Do You Need a Down Payment For a Car Loan?
A majority of auto loans require some kind of down payment. So you may ask, “How much down payment for a car should I put down?” Most financial experts suggest 20% of the car price as a good down payment to aim for.
Depending on your credit score and the lender, it may be possible for you to qualify for a smaller down payment. You might be eligible for a no-down payment loan if you have extremely good credit.
However, just because you qualify for a lower payment doesn’t necessarily mean it’s the best financial decision. In actuality, putting more money down will significantly improve your car loan in several ways.
A Large Down Payment Is Better
Paying a smaller percentage of the purchase price will mean your loan balance will be larger, and you may end up paying a more substantial monthly payment. But a larger payment may help you get a car with no credit or co-signer and additional benefits!
A large down payment means you may get the following benefits:
- Lower monthly payments
- Better interest rates
- More favorable loan terms
Can You Use a Credit Card For a Car Down Payment?
If you are considering using a credit card to complete your down payment, you must look into whether it is even possible. While there is no hard and fast rule regarding the use of credit cards for down payments, many car dealers and auto lenders don’t accept credit cards.
After confirming whether your car dealership or lender allows it, you must determine whether you have a high enough credit limit to cover the down payment. Suppose you don’t currently have an available credit limit substantial enough. In that case, you may need to apply for an increase or a new credit card, which could impact your credit scores.
Even if you can make a down payment on a car with a credit card, pause to consider whether you should run up a credit card balance that high.
Benefits of Using a Credit Card
One of the sole benefits of using a credit card for the down payment on a car is the ability to earn credit card rewards. The possibility to earn rewards on a large purchase, like the cost of a down payment, might be tempting to many.
In the grand scheme of things, you are unlikely to make enough money through credit card rewards to balance out the costs associated with the use of a rewards credit card.
Negative Effects of Using Revolving Credit
It’s essential to consider every angle when making a big personal finance decision. Explore every angle and the costs you may not have considered.
Even when you find car dealers and auto lenders that accept credit cards, the dealerships will likely need to pay transaction fees for credit card processing, which they will add to your bill. Simply by using a credit card, you could have a 2%-3% surcharge added to your bill.
These are some of the negative effects you should know about before using a credit card:
| Negative Effects | Description | Long-Term Impact |
| High Interest Rates | Credit cards typically have higher interest rates than auto loans. | Increased overall cost of the car |
| Credit Score Impact | Maxing out your credit card can lower your credit score. | Difficulty in future loan approval |
| Debt Accumulation | Using a credit card adds another monthly payment to manage. | Financial strain and debt cycle |
| Transaction Fees | Some dealerships charge extra fees for credit card payments. | Increased upfront cost |
| Limited Negotiation Power | Dealers may be less willing to negotiate if you’re using a credit card. | Less favorable terms |
| Risk of Default | Missing credit card payments can lead to default and late fees. | Legal consequences, credit damage |
| Opportunity Cost | Money spent on high interest could have been invested or saved elsewhere. | Lost financial opportunities |
Credit Card Interest Rates vs. Auto Loan Interest Rates
Generally, auto loan interest rates will be lower than credit card interest rates. Your credit card has a variable interest rate, meaning the credit card issuer changes the rate depending on the market or your credit score. You could have an interest rate on your credit card balance as high as the rates charged on cash advance loans and bad credit loans.
The one way you might be able to find a credit card interest rate lower than the average auto loan is if you were to leverage a 0% APR introductory period. If you put the down payment on a credit card with a 0% APR, you could pay off the remaining balance by the time the promotional period ends, so you never have to pay interest.
Avoid The Risk By Using an Alternative To a Credit Card
Not relying on a credit card could save you more money in the long run, so you don’t accrue more credit card debt than necessary.
Here are a few solutions that might help you manage your car down payment without turning to a credit card company:
Buy a Used Car
It might be tempting to get a brand-new car with high-end tech. However, getting a used car could help you get a lower down payment and more affordable monthly payments. A used car’s purchase price is significantly lower than a brand-new one, so it might be more feasible to cover your car’s down payment without a credit card.
Take More Time To Save
It might be a wise idea to spend a little bit more time saving up so you can pay cash for the down payment. It might mean that you have to hold out a while longer before purchasing your new car, but it could be worth the wait for the money you might save on interest charges.
Use Trade-In Value As Down Payment
If your current car is still in good working condition, you could sell it and use the money you get from the trade-in value to pay for the down payment on your new car. Doing what you can to get the highest purchase price on your old car may even enable you to make a bigger down payment on your new car loan.
Qualify For an Auto Loan With No Down Payment
There are some car loans with no down payment required. But you might not have the credit score needed to qualify for a little to no money down auto loan.
One possible solution is to have a close friend or family member co-sign your loan. If your co-signer has a high enough credit score, you may be able to qualify for an affordable down payment.
FAQs on Credit Cards and Car Payments
If you’re wondering whether you can split your car down payment between a credit card and a debit card or money order, it’s best to consult with the car dealership or your bank. Policies can vary, so it’s good to know your options upfront.
Not all car dealerships accept cards for down payments. Some might have a cap on how much you can pay with a credit card. Always check with the car dealership beforehand to avoid any surprises.
Using a credit card can expose you to financial risks like high interest rates and the potential for debt accumulation. Make sure to weigh these risks carefully against any rewards or convenience the card may offer.
Generally, a bank or credit union will offer lower interest rates for a car loan compared to the rates on a credit card. This could make your new car purchase more affordable in the long run.
Many dealerships accept debit cards and money orders for down payments. These options allow you to pay upfront without incurring interest, unlike a credit card.
The Bottom Line From CreditNinja
The average cost of a car has reached $46,000.3 Whether you end up looking into used cars or opting for a new one, your down payment amount will directly affect your car loan and the repayment terms. While it’s possible to use a credit card, there are better alternatives.
A personal loan could help you get the money you need at reasonable rates. At CreditNinja, we offer personal installment loans with personalized loan terms and competitive rates. Apply online today and see how much you may qualify to get!
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