Ever think about using a credit card to buy a car? You might now

Here's how you can use a credit card to buy a car — and what other financing options you have.

Updated

When looking to finance a new car, you’ve got a few different options. These can include — and are not limited to — paying in cash, taking out a personal loan, a car loan or a lease agreement. There’s also the option to use a credit card, although there are a few ways this should be done to minimize interest.

With low interest rate promotions on the market, a credit card may be the ideal option for paying off your new car. Credit cards carry risks however, so it’s important that you take the time to figure out if a credit card is really the most suitable option for financing your new car.

How to buy a car with a credit card

The main ways to pay for a car purchase is to use:

Choosing a low interest rate card means you can pay off the balance gradually without facing the hefty charges associated with a regular credit card or a personal loan.

You can also choose to transfer the balance over to a loan or transfer it to a new a card with a low or 0% balance transfer offer. You could theoretically continue to balance transfer the remaining balance to a new card each time the promotional balance transfer period ends, but there are a few drawbacks to this method. When you transfer a balance over to a new card, you’ll only be able to transfer a certain percentage of your total approved limit. This is usually around 70% of your approved credit limit – plus you might eventually run out of providers who are willing to give you a balance transfer card.

Did you know?

Every time you apply for a new credit card, your potential card provider will check your credit file. These checks, also known as “hard pulls” or “credit inquiries”, are also recorded on your credit file. Too many credit inquiries at any one time may be a red flag to lenders – not to mention your credit score can decrease, since a single credit inquiry knocks around 5 points off your score.

Other things to consider when buying a car with a credit card

  • Annual fee. Some credit cards come with an annual fee, so you’ll have to factor this into your equations when working out how much this method of buying a car will cost you.
  • Interest rates. If you can’t make a car payment in full, you’ll want to be wary of the interest rate your credit card charges. This is one of the most risky reasons for using your credit card to finance car payments – if you can’t afford to pay off your balance in full, charges can add up quickly.
  • Interest-free grace period. Canadian credit cards offer a minimum of 21 days interest-free, however some cards offer higher interest-free periods of up to 45 or higher.
  • Promotional periods. A credit card offer – such as a 0% or low balance transfer rate – will end after a certain number of months, and when this happens, the rate will revert to the standard purchase rate.
  • Rewards points. If you’re making a big purchase with a credit card, you might be able to earn rewards points or cash back doing it. Be sure to compare the value of the rewards points or cash back with the interest you may pay. Interest charges could seriously reduce the value of any rewards you reap.
  • Credit limit. You’ll need to make sure your credit limit is large enough to pay for some – or all – of your new car purchase.
  • Limits to your cash flow. Since your credit limit will be strained with the car purchase, you may have less credit to go towards paying off your bills and other expenses.

Compare credit cards

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Benefits with this card Description
HSBC +Rewards™ Mastercard®
11.9%
11.9%
$0 annual fee for the first year ($25 thereafter)
N/A
Earn 2 Points for every $1 spent on eligible dining or entertainment purchases.
Earn 10,000 Points ($50 travel value). Plus, get a full annual fee rebate for the Primary Cardholder for the first year. Apply by June 29, 2020. This offer is only available to residents of Canada other than the province of Quebec. Conditions apply.
BMO World Elite Mastercard
19.99%
22.99%
$0 annual fee for the first year ($150 thereafter)
$80,000
Get 3 BMO Rewards points per $1 spent on eligible travel, dining and entertainment purchases (up to $50,000 spend annually), and get 2 BMO Rewards points per $1 spent on all other eligible purchases (and once you reach the $50,000 annual spend).
Earn a bonus of up to 35,000 BMO Rewards points with a minimum spend of $3,000 on eligible purchases in the first three months of card membership ($250 travel value to be used towards a flight booked through bmorewards.com). Plus, get the $150 annual fee waived in the first year.
HSBC World Elite® Mastercard®
19.9%
22.9%
$0 annual fee for the first year ($149 thereafter)
$80,000
Earn 3% in travel rewards on all eligible travel purchases (6 Points per $1 spent) and earn 1.5% in travel rewards on all other eligible purchases (3 Points per $1 spent).
Earn up to 60,000 Points ($300 travel value). Plus, get a full annual fee rebate for the Primary Cardholder for the first year. Apply by June 29, 2020. This offer is only available to residents of Canada other than the province of Quebec. Conditions apply.
BMO Preferred Rate Mastercard
12.99%
12.99%
$20
$15,000
Take advantage of an introductory balance transfer offer, annual fee waiver in the first year, and low purchase and cash advance interest rates.
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
American Express Business Edge Card
19.99%
21.99%
$99
N/A
Earn 3 Membership Rewards points for every $1 spent on eligible business essentials including office supplies, electronics, rides, gas, eats and drinks (up to an annual earn of 75,000 Membership Rewards), and earn 1 Membership Reward point for every $1 spent on all other eligible purchases
Earn up to 42,000 Membership Rewards points in your first year. Earn a Welcome Bonus of 30,000 Membership Rewards points when you spend at least $5,000 on eligible purchases within the first three months, and earn 1,000 Membership Rewards points each month (a total of 12,000 annually) when you spend a minimum of $3,000 on eligible purchases
Shell AIR MILES Mastercard from BMO
19.99%
22.99%
$0
$15,000
Get 2 AIR MILES for every $20 spent at participating AIR MILES Partners, and get 1 AIR MILE for every $20 spent on eligible purchases elsewhere.
Get 800 AIR MILES Bonus Miles.
Shell AIR MILES World Mastercard from BMO
19.99%
22.99%
$99
$60,000
Earn 1.25 AIR MILES reward miles at Shell stations in Canada and 1 mile per $15 spent for all other purchases.
Earn 1.25x Miles on card purchases at participating Shell stations in Canada and 1 mile per $15 spent for all other purchases.
BMO CashBack World Elite Mastercard
19.99%
22.99%
$0 annual fee for the first year ($120 thereafter)
$80,000
Earn 1.5% cash back on all eligible purchases.
Get up to 5% cash back on all eligible purchases made within the first 3 months (up to a maximum spend of $4,000). Plus, get the first year annual fee of $120 waived.
Shell CashBack Mastercard from BMO
19.99%
22.99%
$0
$15,000
Get 1.5% cash back at participating Shell locations in Canada (up to a maximum spend of $2,500 in any monthly billing period), and get 0.5% cash back everywhere else.
Get $50 in cash back bonuses once you charge your first eligible purchase to your card. Plus, earn 1% cash back for the first 6 months on all eligible purchases.
BMO Rewards Mastercard
19.99%
22.99%
$0
$15,000
Get 1 BMO Reward point for every $1 spent on eligible purchases, and get 2 BMO Rewards points for every $1 spent at participating National Car Rental and Alamo Rent A Car locations.
Earn a bonus of up to 20,000 BMO Rewards points. Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
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How else can you finance a car purchase?

There are many other ways of financing your car purchase and they should all be considered carefully so you can walk off of the car lot feeling like you got the best deal possible.

  • Car loan. When you get a car loan, the car that you’re planning to buy is actually used as security for the loan. If you fail to meet all of your loan obligations, the lender has the right to seize your car. The interest rates are usually lower on this kind of loan since it has been secured by an asset.
  • Personal loan. When you take out a personal loan to purchase a car, you have to make regular payments like you would with any other loan. You can usually get a personal loan for one to seven years, and can choose between a secured or an unsecured personal loan. The type of loan and the loan term will influence both the interest rate and how much you’re allowed to borrow.
  • Car lease. Getting a lease for your car financing is a lot like renting, but you will be given an option to buy it when the lease has expired for a residual. A residual is a percentage or value that has already been agreed upon when the car was first purchased.

Bottom line

Even if you decide that using a credit card to pay for your car is the best option, credit cards do not offer much protection in the event that you miss a payment or pay late. In fact, credit cards will often heavily punish you for a missed or late payment. A credit card may save you money on your car purchase and provide you with more rewards points or cash back, but if not managed correctly, credit cards can also get you into trouble.

If you’d like to learn more about credit cards, head to our comprehensive guide here.

Frequently asked questions

Picture: Shutterstock

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