Can You Use a Credit Card for a Down Payment on a Car?

The money you put down when you sign for a new or used vehicle is known as the “down payment.” These funds immediately decrease the vehicle's purchase price and effectively lower the interest you pay for that car. Some dealerships require car down payments based on specific buyer criteria, while others don’t. 

The traditional rule of thumb dictates putting down anywhere from 10% to 20% of the purchase price—20% for new and 10% for used. If you go into a car loan deal for a new car and can afford the monthly payments, putting 20% down can help ensure you won’t end up upside-down (owing more than the car’s market value) on the loan. However, putting down so much money can have the opposite effect if you’re stretching your finances thin, so it’s a balancing act that depends more on your personal finances than any decades-old advice. 

One of the tricks car salesmen use is to persuade you to put more down before you even talk real numbers. What you save in interest payments could be added to the price through various fees and add-ons. Down payments can be one way to pay off a car loan faster, but when they’re used to charge you more for the car you want, any advantages cancel out. 

Part of learning how to buy your first car (and every car you purchase after that) is understanding how each step and element of car buying interconnects. When you find the best combination that fits your budget and lifestyle, you’re on the right track. Carefully consider the following pros and cons of making your down payment with a credit card. 

Pros

• Borrowers can increase their chances of car loan approval by lenders
• Maximize spending by earning credit card rewards, cashback, and other perks from the best credit cards
• Adds to your credit mix
• Protects your emergency fund
• Reduces interest charges by lowering the principal balance upfront

Cons

• Not all dealerships allow you to make a down payment with a credit card
• If they do, most cap how much you can charge, subject to your daily spending limit 
• Credit card transaction and convenience fees can be up to 4% of the purchase price
• Reduces your available credit 
• Increases your credit utilization ratio 
• Credit cards come with high interest rates compared to most auto loans
• You must juggle credit card payments alongside your new car loan payment 
• No rewards or perks if you take out a credit card cash advance

Whether you should use your credit card or an alternative payment method to cover your car loan down payment boils down to your comfort level with your financial situation. If you’re in a good spot where you’ve got extra funds to put down without having to scoop from your savings, all the better. However, if you can hardly afford the monthly payment, paying down additional debt from your down payment can easily spell disaster. Managing two (potentially equal) payments can test anyone’s finances. 

Financial strain

In addition to living beyond your means, making a down payment with your credit card can cut you off from resources that become invaluable in emergencies. If you use up your entire savings to save money on your car purchase but need funds to cover expensive medical bills, you’d be out of luck. Since you’ve already charged your credit card to near your credit limit, you may not have enough room to breathe. 

Falling into the debt cycle

Managing your money correctly requires a delicate balance between income, expenses, and debt. Compounding interest that comes with credit card debt can quickly put you into a tailspin that’s extremely difficult to get out of. Defaulting on your loan causes immediate late fees, but you also risk repossession, credit damage, and potential legal troubles. It’s easy to overlook the risk to your financial standings when considering buying a new car, but the threats persist. 

You don’t have to know how to calculate car loan interest rates to recognize the benefits of a fixed versus variable interest rate. When interest rates are fixed, you can account for them correctly within your monthly budget. However, variable interest rates—like those that apply to credit card balances—can present a moving target. Accounting for changing credit card interest rates can wreak havoc on your budget. 

Despite the apparent benefits of making a down payment on your car loan, sometimes the payment method you choose doesn’t fit the bill. If you’re hesitant to use your credit card for your down payment, consider the following alternatives. 

1. Cash

Car dealerships readily accept cash as a down payment. While cash is king, it may not always have any additional negotiating power beyond putting money down in the first place. However, you may incorporate flashing some greenbacks into your negotiating strategy. Serious buyers carry cash, and dealerships appreciate putting funds straight into the company’s coffers. 

2. Personal check or debit card

Writing a check isn’t as common anymore, but dealerships often accept a personal check as an approved payment method. Before you sign and date your check, ensure that the funds are readily available in your bank account. Bounced checks can jeopardize a car deal regardless of where you are in negotiations. 

Debit cards may grant car dealers access to the same funds as a personal check, but, like credit cards, they may come with a transaction fee. Whether or not the car dealership passes that fee onto you is up to the individual location. Because most down payments are $1,000 or more, you should also inform your bank that you’ll charge a large amount so they don’t flag it as fraudulent.  

3. Money order

Lowering your loan balance with a down payment can require more steps if you want to pay with a money order. However, dealerships often still accept this payment type and may even prefer it to a personal check. Like any form of down payment besides cash, you should reach out to the particular dealership to review their payment policies. A quick phone call can save you a lot of trouble making your down payment. 

4. Trade-ins

Putting money down by offering your used car for collateral may seem like an odd way to make a down payment, but it’s all in how the dealership accounts for the value exchange. Whether you opt for dealership credit or ask the finance department to cut you a check, you can use those funds to reduce your new car’s purchase price and pay less interest. It’s also often in your best interest to negotiate the new car purchase price before you mention a trade-in, but everyone has their own strategy. 

5. Tap into your resources

Putting thousands onto your credit card for a down payment can feel like gasping for air in a tank of water filled nearly to the top. You’re left with little wiggle room and the intense pressure of debt. Reaching out to your friends and family can help, especially if you can find someone to cosign for you for better loan terms—including ones that don’t require a down payment. Family may also be able to loan you the funds you need so you don’t have to charge up your credit card balance. 

6. Take a step back

If you’re staring at making a large down payment on a new vehicle loan like a complex math problem on a chalkboard, it could be distance and perspective you need rather than the perfect answer. Sometimes, forcing favorable terms on a car loan isn’t possible despite your best efforts. You may need to wait a few more months to build up a stack of cash, improve your credit score, or convince those closest to you to help. In the meantime, considering other options—such as a car subscription—can help you solve the problem from a new point of view.