Can You Purchase a Car with a Credit Card?
When thinking about buying a car, one curious question pops up — can we purchase a car with a credit card?
Well, the answer is: It depends.
It ultimately comes down to whether the benefits of swiping your credit card(s) for such a big purchase outweigh the extra fees and charges that come with it.
Extra Fees You Should Know About
Yes, there would most likely be an extra fee associated with using a credit card to buy a car.
This fee primarily covers the MDR — the Merchant Discount Rate — which is the amount a car dealership must pay to its bank to process your card transaction.
- Typically, MDR charges are 2–3% of the total amount you're planning to swipe your credit card for.
- Good news: MDR charges can often be negotiated with the dealership. Some dealers might agree to lower it to around 1%, especially for high-ticket transactions.
👉 Tip: Always check with your car dealership in advance whether they:
- Accept full payment via credit card, or
- Allow only partial payment (such as down payment) using a credit card.
Important Note Before You Swipe!
Since car purchase amounts are usually significantly high, you’ll likely need multiple premium credit cards to complete the transaction.
Some excellent options include:
These premium cards not only have higher credit limits, but also maximize the benefits you can earn on such large transactions.
Let's Look at the Benefits of Using Premium Credit Cards for Purchasing the Car
1. Reward Points:
Depending on which premium card(s) you use, you might receive massive reward points, cashback, or statement credits.
If you're using multiple credit cards, you multiply your reward earning opportunities across different card issuers.
2. Spend Milestone Rewards:
Since the car’s purchase amount is substantially high, chances are you’ll easily reach your monthly or even yearly spend milestones set by your credit card issuer.
This unlocks additional milestone rewards, like free vouchers, flight tickets, membership upgrades, and more.
3. Offers on Credit Card Points with Lifestyle Brand Partners:
After your purchase, the accumulated reward points can become even more valuable.
During the festive season or exclusive sale events, credit card companies often offer enhanced redemption rates when you redeem your points with lifestyle and luxury brand partners.
This can give you a huge bonus on top of your car purchase savings!
4. Exclusive Bank Offers on Large Transactions:
Some banks, especially during festive periods or special promotions, run bonus reward or cashback campaigns for high-value transactions — sometimes offering 5X reward points or instant cashback for purchases above a certain threshold.
Since buying a car involves a significant spend, it can easily qualify you for these special seasonal bonus programs, giving you even more value back on your purchase.
Key Points to Remember Before Purchasing a Car Using a Credit Card
Before you swipe your credit card for a car purchase, keep these important tips in mind:
1. Ensure Sufficient Liquid Cash:
While you enjoy a 40-50 day interest-free period, you must settle the full credit card bill after the due date.
Make sure you have enough liquid cash in your bank account to avoid paying high interest charges.
2. Negotiate the MDR Charges:
Check if your car dealership is willing to negotiate the MDR fee (Merchant Discount Rate).
You can often bring it down to around 1%, saving you extra money on the total purchase amount.
3. Confirm the Maximum Amount Allowed via Credit Card:
Some dealerships may only allow the down payment to be made through a credit card, not the entire car value.
Confirm upfront if the full amount or only a partial amount is accepted.
4. Check Your Credit Card Limit:
Ensure that your credit card limit is high enough to cover the car’s purchase amount.
If your limit is not sufficient, contact your bank to temporarily increase your credit limit for this high-value transaction.
Important:
Keep in mind that if your credit limit utilization goes too high (typically above 30-40%), it can negatively impact your credit score.
Having a higher credit limit provides a safety buffer and helps you maintain a healthy credit utilization ratio, protecting your credit health even after a big transaction.
5. Understand Daily Reward Point Caps:
Many premium cards have a daily cap on how many reward points you can earn.
Check your card’s T&Cs to avoid missing out on potential rewards.
6. Verify the Dealership's Merchant Category Code (MCC):
It's crucial to know the MCC code of the car dealership beforehand to ensure reward points or cashback eligibility.
How to Find the MCC:
- Ask the dealership directly.
- Make a small test transaction (e.g., ₹10,000) and check the MCC in your banking app or by calling your bank.
Note:
If the dealership’s MCC falls under categories like Rent or Insurance, you may not earn any rewards for the transaction.
Always verify the MCC to avoid disappointment when your credit card statement arrives.
Conclusion: Should You Buy a Car Using a Credit Card?
Buying a car with a credit card can unlock massive rewards, milestone benefits, and even loyalty program advantages. However, this decision should be carefully driven by multiple factors:
- Effective reward earnings: After accounting for the extra MDR charges (typically 1-3%).
- Availability of sufficient liquid cash: Ensure you can pay off the full credit card bill before the due date.
- Overall financial planning: Make sure the car purchase aligns with your larger financial goals.
If the net reward value after deducting MDR charges isn’t lucrative enough, it may be more beneficial to invest your surplus cash in higher-yield asset classes rather than using your credit card for the car purchase.
Final Thought:
Always evaluate the true cost vs. true reward before making a large transaction decision with your credit card!
📢 Stay Tuned for More!
Enjoyed this blog? Stay tuned for more insights, tips, and strategies to make smarter decisions when buying high-value assets—because every major purchase today could be a stepping stone toward securing your financial future tomorrow.
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