Car Deal Canada

Buying a Car With a Credit Card in Canada

Buying a Car With a Credit Card in Canada

Imagine this scenario – you find your dream car for sale at a local dealership. You don’t quite have the cash to pay for it upfront and don’t want to deal with financing. But you do have an unused credit card in your wallet with a high limit. So you decide to charge the entire vehicle purchase to your card!


While this may sound unrealistic, buying a car with a credit card is actually possible in some situations. The idea of earning points or cashback while getting a new set of wheels may be tempting. But there are also risks involved with putting such a large purchase on plastic.


In this article, we’ll explore everything you need to know about using a credit card to buy a car. You’ll learn about the advantages and disadvantages, find tips for getting a dealer to accept your card, and ultimately determine if it’s the right payment method for your next auto purchase.

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Overview of Using Credit Cards for Car Purchases

Using a credit card to purchase a vehicle is certainly possible, but it’s not the most common method of payment. Most people opt for auto loans, cash, or leasing when acquiring a new or used car. However, there are some situations where buying with plastic can make sense.

Credit cards offer the convenience of not needing to arrange separate financing or carry large amounts of cash. They also allow buyers to earn potentially lucrative rewards like cash back or travel points on large purchases. Additionally, credit card users gain access to protections against fraudulent transactions that other forms of payment may lack.

But there are downsides as well. High interest rates kick in if the balance isn’t paid off quickly, and many dealers add processing fees for credit card transactions. There’s also the risk of bumping up against your credit limit if you’re purchasing a more expensive vehicle. Overall, using a credit card strategically can be beneficial, but it requires caution.

 

Advantages of Using a Credit Card

There are some compelling reasons why using a credit card to buy a car in Canada can be advantageous:

 

Earn Rewards and Cash Back

One of the biggest perks of paying with plastic is the opportunity to rack up rewards points and cash back. Most rewards credit cards offer bonus categories like grocery stores or gas stations, but some cards provide extra rewards for large purchases. Putting a $30,000 car on a card could mean thousands of dollars worth of points or cash back.

 

Convenience

Paying with a credit card means you don’t have to worry about bringing cash, getting approved for financing, or waiting for a bank transfer. As long as you have enough available credit, you can pay for the car right away with the swipe of a card. This makes the buying process quicker and simpler.

 

Consumer Protection

Credit cards offer more robust fraud protection and dispute resolution processes compared to other payment methods. If the dealer doesn’t deliver the car as promised or charges extra fees without authorization, it can be easier to dispute those charges and get your money back when paying by credit card.

 

Disadvantages of Using a Credit Card

While there are some advantages to paying for a car with a credit card, there are also some significant drawbacks to keep in mind.

 

High Interest Rates

One major disadvantage is that credit cards tend to have much higher interest rates than auto loans. The average credit card APR is currently around 19%, whereas many auto loans are available for under 5%. If you cannot pay off your credit card balance right away, the interest charges can quickly outweigh any rewards you earned.

 

Transaction Fees

Many car dealerships will charge a processing fee for credit card transactions, usually 2-4% of the total purchase amount. These fees can add hundreds or even thousands of dollars to the cost of your vehicle. Dealers accept credit cards as a convenience to customers, but do not want to eat the transaction costs themselves.

 

Credit Limit Challenges

Unless you have stellar credit and a very high limit, most credit cards will not be able to cover the full cost of a vehicle purchase. You may be able to put the down payment on a credit card, but will need another source for the remaining balance. This somewhat defeats the purpose of using a card for rewards.

With interest charges, transaction fees, and credit limits to contend with, credit cards tend to be a less than ideal way to pay for a car. Carefully weigh the costs against the rewards potential before deciding if it’s the right option.

 

Requirements for Using a Credit Card to Buy a Car in Canada

Not everyone will qualify to buy a car with a credit card in Canada. Credit card issuers and auto dealers will want to see you have excellent credit before approving a five-figure credit card purchase. Here are the key requirements:

 

  • Excellent credit score – You’ll generally need a FICO score of 720 or higher to be approved for a large enough credit limit. Anything below 700 will likely lead to denial.
  • Low utilization rate – Lenders want to see you’re only using a small portion of your total available credit. Keep your utilization below 30% across all cards.
  • No late payments – Any recent missed or late payments can disqualify you quickly. You’ll need a perfect payment history.

 

Meeting the above criteria shows creditors you handle credit responsibly and can afford a large purchase. It also indicates you’ll likely pay off the balance in full each month. Falling short on any of these requirements makes approval unlikely.

Before applying for a higher credit limit or attempting a car purchase on plastic, check your credit reports and FICO scores. This will allow you to identify and resolve any issues in advance. Maintaining pristine credit is key to success when buying a car with a credit card.

 

Finding Dealers That Accept Credit Cards

If you decide that purchasing a vehicle with a credit card is the right option for you, the next step is to find a dealer that allows credit card payments. Unfortunately, this can be tricky since many dealerships have policies against accepting credit cards for car purchases. However, there are a few strategies that can help increase your chances of locating a dealer that welcomes credit cards:

 

Call Ahead to Ask About Payment Policies

Don’t waste time visiting dealer after dealer only to find out they don’t accept credit cards when you’re at the register ready to pay. Instead, call ahead and ask about their payment acceptance policies over the phone. Let them know you are interested in paying for your vehicle with a credit card and want to confirm they allow that before planning a visit.

 

Independent Dealers May Be More Flexible

Franchise car dealers that are part of larger dealer networks often have strict corporate policies against taking credit cards for vehicle purchases. Independent used car dealers, on the other hand, may have more flexibility in the types of payment they accept. Touch base with independent dealers in your area to inquire about putting your next car purchase on a credit card.

 

Look for Dealers That Advertise Credit Card Acceptance

Some dealers that welcome credit card payments will advertise that fact openly in their marketing materials and on their websites. Phrases like “we accept all major credit cards” or “credit card financing available” are good signs. You can search dealer websites and online listings specifically for those key phrases to surface dealers more likely to accept credit card payments.

 

Strategies to Maximize Rewards

If you decide to use a credit card for a car purchase, either in full or for a down payment, there are some strategies you can employ to maximize the rewards you earn:

 

Put Down Payment on a Rewards Card

Even if the dealer won’t allow you to put the entire vehicle purchase on a card, most will let you put the down payment on it. Opt for a rewards credit card that offers a generous sign-up bonus or high rewards rates in categories like travel, dining, or cash back. Just be sure to have a plan to pay off the down payment amount quickly.

 

Pay Off Balance Quickly

Don’t leave the balance sitting on your card accruing interest charges. Have a plan to pay it off as fast as possible, ideally within the same billing cycle. Set up automatic payments from your bank account to make sure you don’t miss any monthly payments.

 

Consider 0% Intro APR Card with Sign-Up Bonus

A credit card with a 0% introductory APR period can give you over a year to pay off the balance interest-free. Combine that with a generous sign-up bonus for meeting minimum spend requirements, and you could earn thousands in rewards. Just be sure to have the balance paid before the 0% rate expires.

 

Alternatives to Credit Cards for Car Purchases

While credit cards may offer rewards, using them to buy a car also comes with risks and limitations. If you don’t want to put the purchase on a credit card, there are other options for making a large payment without needing cash or traditional financing.

 

Personal Loans

Personal loans allow you to borrow money from a bank or online lender. The loan amount, interest rate, and repayment terms are set when you first get the loan. Personal loans can be unsecured or secured. Unsecured personal loans don’t require collateral but have higher interest rates. Secured loans use an asset like your home as collateral for potentially lower rates.

A personal loan gives you a lump sum of cash that you can use for any purpose, including buying a car. Interest rates are usually lower than credit cards and the fixed monthly payment may be more manageable than a credit card balance.

 

Lines of Credit

Lines of credit work similarly to credit cards in that you have a maximum credit limit but only pay interest on what you actually borrow. The biggest difference is that lines of credit have much lower interest rates comparable to personal loans.

With a line of credit, you can draw down as much as you need up to your credit limit. This flexibility makes lines of credit useful for large irregular expenses like a car purchase. You only take out as much cash as you need and avoid interest charges on the rest.

 

Payment Apps

Some payment apps like PayPal Credit offer installment credit accounts similar to credit cards. With PayPal Credit, you can finance a large purchase over several months. PayPal charges deferred interest on the balance, so it’s important to pay it off in the promotional period.

Payment apps may give you another option to spread out a car payment over time without technically using a credit card. Just be sure to read all the fine print to understand the fees and interest charges involved.

 

Case Study #1

John had been saving up for a new car for over a year. He had excellent credit and decided to put the entire purchase on his credit card to maximize rewards. John did his research ahead of time and found a local dealer that accepted credit cards with no cap. He asked the dealer to run a pre-authorization on his card to ensure his $30,000 limit would cover the full amount.

When John showed up to pick up his new SUV, the dealer allowed him to swipe his credit card for the entire $28,000 purchase price plus taxes and fees. In return, John earned over 200,000 points on his travel rewards credit card – enough for a free flight! He made sure to pay off the balance right away to avoid interest charges.

By using his credit card strategically, John was able to earn a huge sign-up bonus and points to cover an upcoming vacation. He recommends being cautious and only doing this if you have the credit limit to cover the full amount and no risk of carrying a balance.

 

Case Study #2: Running into Challenges

John, a young professional in Toronto, wanted to take advantage of a new credit card’s sign-up bonus and intro 0% APR offer when purchasing his next vehicle. He had a credit score of 720 and low utilization, meeting the basic requirements to pay for a car with plastic. After being approved for a card with a $15,000 limit and 60,000 point bonus for spending $4,000 in the first 3 months, he started shopping for used SUVs around $12,000.

John found a 2018 Toyota RAV4 at a local dealer listed for $11,995. He called ahead to ask if they accepted credit cards and was told “no problem.” Excited about the bonus points he would earn, John went to the dealer with his new card ready. However, upon sitting down to finalize the purchase, he was informed that the dealer could only put a maximum of $2,000 on a card due to their merchant fees.

Disappointed, John tried negotiating to charge more but the dealer wouldn’t budge. He ended up putting the $2,000 down payment on his card and financed the remainder. While he still earned some rewards, it was far less than he hoped for. John learned to get any credit card policies in writing beforehand for major purchases in the future.

 

Tips for Using a Credit Card

If you decide to pay for a car with a credit card, here are some tips to make the process go smoothly:

 

Negotiate fees – Many dealers charge a fee for credit card transactions, usually 2-4%. Try to negotiate this fee down or see if they’ll waive it if you put down a large down payment.

Ask for increase if needed – If your credit limit isn’t high enough to cover the full purchase price, ask your card issuer for a temporary limit increase. This requires excellent credit and low utilization.

Have a payoff plan – Using a credit card only makes sense if you have the cash to pay it off quickly. Make a plan to pay the balance before interest kicks in.

 

Conclusion

In summary, using a credit card to buy a car in Canada can earn major rewards, but requires caution. Weigh interest costs against rewards to decide if it makes sense for your situation.

When used responsibly, credit cards can be a strategic tool for maximizing value on large purchases. Just be sure to have a plan for paying off the balance quickly. Otherwise, interest charges can negate any rewards earned.

Buying a car is a major financial decision. Do your homework and evaluate all financing options before deciding if a credit card is right for you. Crunch the numbers to confirm the math works out in your favor.

With the right credit card strategy and diligent repayment, you may be able to earn thousands in rewards on your next car. But tread carefully and don’t let high interest charges drive you into debt. A car loan or line of credit could be a safer choice.

At the end of the day, only you can decide if the pros outweigh the cons. Weigh all factors carefully before swiping a credit card for that shiny new ride.

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Questions About Buying a Car
With a Credit Card

Yes, it is possible to buy a car with a credit card in Canada, but there are some important considerations. Many dealerships will allow you to put the down payment for the vehicle on a credit card. Some may also let you charge a portion of the overall cost to a card, up to a certain limit. However, most dealers will not let you put the entire vehicle purchase on a credit card due to the high transaction fees they would incur.

The percentage of a car purchase you can put on a credit card in Canada varies by dealership. Some dealers may allow you to put up to 50% of the total cost on a credit card, while others restrict it to just the down payment, usually 10-20% of the overall price. The maximum amount depends on the individual dealer’s policies. It’s best to contact the dealership ahead of time to ask about their specific card payment limits.

In most cases, taking out an auto loan is better than buying a car outright with a credit card in Canada. Car loans usually have much lower interest rates, often below 5%, compared to credit cards which can be 20% or higher. Loans also offer fixed monthly payments over a set repayment term, making it easier to budget. Credit cards should mainly be used for the down payment if allowed, not to finance the entire vehicle.

Yes, many car dealerships in Canada will charge additional fees for payments made by credit card, usually around 2-4% of the transaction amount. These fees help offset the processing costs and merchant fees incurred by the dealers when accepting card payments. The exact fee percentage should be confirmed ahead of time with the specific dealer.

**Pros:**

– Can earn rewards points and cash back on your card

– Useful if you need financing but don’t qualify for an auto loan

– Convenient way to make a large purchase

 

**Cons:**

– High interest rates on credit cards

– Transaction fees from dealerships

– Easy to get into debt beyond your means

– Limits on how much dealers will allow on a card

 

 

Some of the best rewards credit cards in Canada for buying a car include:

 

Scotiabank Momentum Visa Infinite – Up to 10% cash back rewards

– MBNA Rewards Platinum Plus Visa – 2% cash back

– Rogers World Elite Mastercard – Up to 4% cash back

– BMO CashBack World Elite Mastercard – Up to 3% cash back

 

Just keep in mind rewards cards also tend to have higher interest rates.

Yes, you can certainly try to negotiate the sale price of a vehicle when paying with a credit card in Canada. However, most dealers will not reduce the price further because they are already incurring extra fees by accepting your credit card for payment. But it never hurts to politely ask if they can offer a better overall deal.

The best way to find car dealers that accept credit card payments in Canada is to search online directories and forums. Some resources to check include:

 

– CanadaDrives.ca dealer listings

– RedFlagDeals forums

– AutoTrader.ca and Kijiji Autos classifieds

– Individual dealer websites

 

You can also call your local dealerships directly to ask about their credit card policies before visiting the lot.

 

Yes, buying a used car with a credit card can provide more security and fraud protection in Canada. Credit cards offer additional insurance and liability coverage for large purchases. If issues arise with the used vehicle after purchase, you may be able to dispute the charges or file a claim to recover the funds if you paid with a credit card.

Yes, buying an electric car in Canada with a credit card can make you eligible for federal and provincial electric vehicle tax credits and rebates, up to $5,000 or more. The purchase method does not matter – whether you pay cash, finance, lease or pay by credit card, you can still qualify for EV incentives. Just be sure to save your detailed receipt showing the purchase.

 

Most experts recommend having a credit score of at least 680 before trying to buy a car with a credit card in Canada. This shows lenders that you are a relatively low credit risk and more likely to make your payments on time. If your score is under 680, you’ll have a harder time getting approved for a large enough credit limit to charge an entire vehicle.

 

Yes, using a separate, dedicated credit card that you open specifically to buy a vehicle in Canada is a smart idea. This way you can take advantage of introductory 0% APR offers and maximize rewards points. Just be absolutely sure to pay off the entire auto balance before the 0% rate expires to avoid deferred interest.

When paying for a car with a credit card in Canada, make sure to bring all the necessary documents with you, including:

 

– Valid Canadian driver’s license

– Proof of insurance

– Credit card you are using for payment

– Signed sales contract and bill of sale

– Completed loan application (if financing a portion)

– Registration paperwork

– Safety standards certificate (for used vehicles)

The payment process with a credit card down payment on a financed car works like this in Canada:

 

  1. You pay the full credit card down payment upfront
  2. The dealer runs a hard credit check and approves your auto loan
  3. Your loan principal amount is reduced by the down payment
  4. You then make monthly payments towards the loan balance
  5. Interest accrues on the loan portion of the payment only

It is unlikely for independent, private party car sellers to accept direct credit card payments in Canada. This is because they would have to set up credit card processing accounts which can be costly and come with strict rules. Private sellers normally only accept cash, certified cheques, money orders or Interac e-Transfers for vehicle purchases instead.

Unfortunately once you drive a new or used car off the dealership lot after purchasing it with a credit card in Canada, you cannot simply return it or reverse the charges if you change your mind. By law, car buyers do not have an automatic “cooling off” period for vehicle purchases in Canadian provinces. You would have to re-sell the car privately if you have immediate buyers remorse.

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