Can You Pay Your Car Bill With a Credit Card?

Paying your car bill with a credit card can be tempting After all, who wouldn’t want to earn rewards like cash back or miles on such a large regular expense? Unfortunately, it’s usually not that simple Most auto lenders don’t accept direct credit card payments. However, with a bit of creativity, you may be able to make it work. Here’s what to know about using a credit card to pay your car bill.

Direct Credit Card Payments are Rarely Accepted

The vast majority of auto lenders do not allow you to pay your car loan directly with a credit card. When you make a credit card purchase, the merchant has to pay a processing fee. For a large payment like a car bill, that fee can be substantial To avoid eating that cost, most lenders only accept payment methods like

• Debit cards
• Checks
• Money orders
• Bank account transfers

According to my research, less than 1% of auto lenders accept direct credit card payments for car bills. I couldn’t find a single major lender that offered this option.

While rare, there are a handful of smaller lenders that may allow credit card payments. But don’t get your hopes up. The odds are very slim that your particular lender will be one of them.

Third-Party Processors Add Fees

Some third-party payment processors like Plastiq will allow you to pay bills with a credit card for a processing fee. This works by you providing your car loan details to the processor. They charge your credit card for the payment, then send a check or make an electronic payment to the lender.

The downside is that you’ll pay hefty processing fees for this convenience. Expect to pay at least a 2.5% fee on the transaction amount. So for a $500 car payment, you’d pay an extra $12.50. Depending on your credit card rewards rate, you may end up losing money overall.

Cash Advances are Costly

Another workaround is to get a cash advance from your credit card to make the payment. But this option comes with multiple risks:

• High fees – Cash advance fees are typically 5% of the amount advanced or $10, whichever is greater.

• High APR – Cash advance APRs are usually over 20% and the interest starts accruing immediately.

• No grace period – Unlike purchases, there is no interest-free grace period for cash advances.

• Lower credit limit – Most issuers set cash advance limits at 50% or less of your total credit line.

With fees and interest eating into your payments, cash advances should really only be used as a last resort in an emergency.

Balance Transfers Have Risks

If your credit card issuer allows it, you may be able to transfer your auto loan balance to a credit card. This can allow you to pay 0% interest for a period of time. However, there are several limitations and risks to be aware of:

• Balance transfer fees – You’ll typically pay between 3-5% of the transfer amount in fees.

• Credit limit – The transfer amount is constrained by your available credit limit.

• Temporary 0% APR – If not paid off in full before the 0% intro period ends, high interest kicks in retroactively.

• Credit score impact – Your score may drop from increased credit utilization.

Overall, balance transfers can make sense if you have a solid payoff plan. But factor in all the costs before deciding if it’s the right move.

When Can it Make Sense?

Given all the drawbacks, you may be wondering if there’s ever a good reason to pay a car bill with a credit card. There are a few scenarios where it could potentially make sense:

• Maximizing rewards – If your card offers exceptionally high rewards, the extra points or cash back may offset the fees. Crunching the numbers is key.

• Hitting minimum spend for a bonus – If you need to spend a certain amount to earn a lucrative sign-up bonus, a large car payment can help you hit that target.

• Emergency payment – When every other option has been exhausted, a cash advance may help you avoid a missed payment or repossession.

• 0% balance transfer promotion – If you qualify for a sufficiently long 0% term to pay off the entire loan, interest savings could justify the transfer fee.

However, these situations should be the exception, not the norm. You’ll want to run the numbers carefully to confirm the rewards or savings outweigh all costs.

Tips for Reducing Car Loan Costs

Rather than racking up fees trying to pay with a credit card, focus first on reducing your car loan’s interest rate. Here are some proven strategies:

• Refinance for a lower rate – Even a small rate reduction can save substantially over the life of your loan. Shop around online for the best terms.

• Make extra payments – Making one extra monthly payment per year will slash loan duration and interest costs.

• Pay biweekly – Making half payments every two weeks will have a similar benefit to making an extra monthly payment.

• Pay down principal – Target additional funds directly at the principal balance to reduce accrued interest.

• Prepay interest – You can often prepay interest in a lump sum upfront to lower the total interest owed.

Following these tips will usually be far more effective at cutting interest costs than trying to pay with a credit card.

The Bottom Line

It is possible to pay your car bill with a credit card but doing so directly is very rare. More often, you’ll need to get creative by using services like Plastiq or taking a cash advance. However, the high fees and interest associated with these workarounds often cancel out any rewards earned. Your best bet is to negotiate the lowest interest rate possible on your auto loan and make accelerated payments. But in certain limited cases, a credit card payment could be financially justified. Just be sure to run the numbers first and fully understand the costs. With strategic planning, you can reduce your car loan interest and take advantage of credit card rewards without paying excessive fees.