According to a 2021 report, “U.S. Auto Loans Market Size and Household Spending Report,” Americans with auto loans pay an average of $412 per month.
Since monthly payments can be high, it’s tempting to use a credit card to earn all those rewards. But before you start packing for Bora Bora, you should know that most lenders won’t allow a direct credit card payment on an auto loan. And even if they did, there would likely be a convenience fee.
This fee is a surcharge that a lender makes you pay for the convenience of using a credit card. The fee typically costs 2% to 3%.
You really don’t want to pay more for your car than you already are, right? But if your car dealer accepts credit cards, there’s another option to try.
You could bypass the loan process altogether and buy a car with a credit card that offers a 0% introductory purchase annual percentage rate. This approach allows you to make interest-free payments using your credit card. These cards have introductory periods that range from about 12 to 18 months. But you’ll need a high enough credit limit to cover the cost of a car, plus you have to find a dealer who will accept a credit card as payment for the entire price.
If you think you can pay the loan off in that time frame and you have very good credit, it’s something to consider. But again, convenience fees might pop up.
Warning: If you miss a payment, you could lose the 0% APR. The regular rate will be much higher, so this isn’t recommended unless you’re on top of your payments.
It’s also possible to transfer your car loan to a balance transfer credit card. Let’s say you have a $10,000 auto loan. If you have excellent credit and can qualify for a balance transfer credit card, you could transfer the loan amount to a credit card.
Balance transfer credit cards offer a 0% introductory purchase APR for a period of time, usually 12 to 18 months or so. So, this is another opportunity to make interest-free payments using your credit card. But on the downside, you might have to pay a balance transfer fee of 3% to 5%.