Paying off a car with a loan

Can You Pay a Car Loan with a Credit Card?

Whether it’s the high interest rate on your car loan that’s weighing you down, or it’s unexpected circumstances that come up in your personal life, paying off your car loan can get challenging. You might be wondering, can you pay a car loan with a credit card? Yes, but there are some pros and cons you should consider first.

Pros of Paying a Car Loan with a Credit Card

The pros of using your credit card to pay a car loan are as follows:

  • Savings: If you transfer your car loan balance to a zero percent APR credit card, you can save a lot on interest charges and pay off your loan faster.
  • Flexibility: Your car loan turns into revolving credit. This means you can carry over a balance from statement to statement. You won’t be penalized as long as you make the monthly minimum payment.
  • Security: Putting your loan on your credit card means that your car is no longer collateral, and you no longer risk losing your car.
  • Rewards: If you can pay back the amount when your car payment is due, you can earn points, miles, or cash back when you use your credit card to pay off your loans.

Cons of Paying a Car Loan with a Credit Card

Though using your credit card may seem convenient, there are disadvantages you should be mindful of, such as:

  • Potential Hit to Your Credit Score: Credit agencies view revolving credit/debt more negatively than secured loans. In addition, since you’re putting a large balance on your card, your credit utilization will decrease. 
  • Interest Rates Will Hike Eventually: Unfortunately, an interest-free loan doesn’t last forever. A zero percent introductory APR usually lasts for about six to 18 months. You’ll start to accrue interest after this and will need to pay off your loan before this time frame comes to an end.

What Are My Options If I Can’t Pay My Car Loan?

Sometimes we bump into emergencies that make it especially difficult to fulfill our payments. So what are your options? Fortunately, there are several routes you can take to pay your car loan. Your credit card isn’t your only option.

1) Talk to Your Lender

If you are unable to pay your car loan, contact your lender and explain your situation. They may be open to working something out, such as forbearance, which puts a pause on your payments. Or if you’re going through temporary financial issues, lenders may allow you to make lower payments for a short period of time. It doesn’t hurt to ask, so be sure to reach out to see what options are available.

2) Refinance Your Loan

If you have strong credit, refinancing your car loan may be an option. This involves taking out a new loan with more favorable terms to pay off your car loan. By refinancing, you can receive lower interest rates and/or a better repayment plan that will help you pay off your loans faster.

Refinancing often requires getting involved with outside lenders (working with the same lender usually doesn’t happen). These new potential lenders will take a look at your car-buying history, payments, and your credit history.

3) Trade In Your Car

You can trade in your car to receive a lower monthly payment. Since trade-in offers tend to be less than what you’d receive from selling the car on your own or from a private-party sale (dealerships have to factor in the cost to restore the vehicle), be sure to get a dealership quote to help maximize your trade-in.

4) Seek Car Loan Assumption

You can look for someone who can take over your payments and ownership of the vehicle. Especially if you have a good lease or a loan with a low-interest rate, finding a buyer will be easier to accomplish. Keep in mind that the buyer will have to meet certain credit and income qualifications and provide proof of insurance.

5) Sell Your Vehicle

Advertise your vehicle for sale, and see if you receive any offers that are enough to pay off your loan. You never know what kind of circumstances buyers are in, and they may very well be willing to meet your price.

6) Take Out a Personal Loan

If your financial troubles are temporary, it’s possible that a personal loan could help tide you over until you can make your full car payment again. You’ll have to make sure that you can make the personal loan payments in the meantime, but if you’re just covering a couple of months worth of car payments and stretching that out over a longer period of time, those payments might be much more manageable.

Will the Dealer Accept a Down Payment Made with a Credit Card?

Though you may be enticed to use your credit card for a down payment to rack up rewards, not all dealerships will allow this. Therefore, be sure to reach out to your dealer to find out what their policy is.

And it’s important to note that auto dealers may charge a heavy processing fee that may be higher than the rewards rate on your credit card. If that’s the case, you are probably better off paying with cash. Be sure to make a thorough assessment of your financial situation before making any final decisions.

What Should I Pay Off First, My Credit Card or My Car Loan?

When you’re managing multiple debts, it can get confusing and frustrating deciding which one to pay off first. So if you have credit card and car debt, look at which one has the higher interest rate. This is the one you should focus on eliminating first.

Credit card debt typically carries higher interest rates than car loans. For example, a 60-month car loan interest rate is currently around 4.56% while the average variable credit card interest rate is 17.36% (both these averages are accurate at the time we published this piece; this can change and depends on credit rating and lender). The longer you carry credit card debt, the more money or interest you will have to pay in addition to the principal you borrowed; this could be much more than your car debt. Moreover, paying off your credit card debt will reduce your credit utilization ratio, which will help increase your credit score.

The Bottom Line

Whether or not you can pay a car loan with a credit card involves many different factors. To set yourself up for financial success, it’s crucial to learn and understand the full picture to avoid potential pitfalls. As navigating the debt journey can be quite daunting and difficult, take time to consider all of your options and situations to find one that will help you in the long run.