5 key factors to keep in mind when paying for a car with a credit card

Purchasing a car is a major financial commitment, and the idea of using a credit card for the payment may seem appealing, particularly if you’re aiming to earn rewards. While this method can offer benefits, it’s essential to weigh the pros and cons carefully. This blog will guide you through the important factors to consider before opting to pay for a car with a credit card.

Can you actually buy a car 100% on a credit card?

The idea of purchasing an entire car with a credit card may sound appealing, especially if you want to rack up reward points. However, in reality, it’s not that simple.

Booking amount via credit card: Almost all car dealerships accept credit cards for paying the booking amount, which typically ranges from 5-10% of the car’s value. For example, if you’re buying a car worth ₹10 lakh, the booking amount could be around ₹50,000 to ₹1 lakh. In fact, dealerships like VW and Skoda often allow transactions up to ₹1 lakh on a credit or debit card without any issue. In some cases, especially for premium vehicles, this amount could go as high as ₹3-5 lakh.

Remaining payment: Credit cards aren’t always accepted. However, when it comes to paying the remaining balance of the car’s price, most dealerships won’t accept full payment via credit card. This is because the dealership has to pay a transaction fee of around 1.75% on the amount charged, which cuts into their margin. For American Express cards, the fee can go as high as 2.5% along with taxes. This is a significant loss for car dealerships, making them hesitant to accept credit card payments beyond the booking amount.

What are your options?

If you’re set on paying with your credit card, there are a few options to explore:

Conclusion

Using a credit card to purchase a car can be a great way to earn rewards, but it’s essential to consider all factors before deciding. Evaluate the merchant fees, your credit limit, interest rates, and your ability to repay the balance on time. Compare alternative financing options to ensure you are making the most cost-effective choice. By considering these aspects carefully, you can take full advantage of your credit card’s benefits while avoiding unnecessary financial stress.

Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited