If you’re trying to avoid paying interest on a car loan, or looking for another way to earn cash back, you may be wondering if you can make a car payment with a credit card — or even move the entire loan balance to a credit card.
Both scenarios are possible, assuming your car loan lender and credit card issuer allow it. But they often require a workaround that may not be worth it. There are risks you'll need to weigh against the potential benefits to determine if it makes sense for you.
Here’s what to know about making a car payment or paying off a car loan with a credit card.
» MORE: Can you pay a loan with a credit card?
Can I make a car payment with a credit card?
If your car loan lender allows it, you can make a car payment with a credit card. However, credit card purchases impose fees on the merchant, so many loan servicers accept only cash-backed payment methods, like a debit card, check, money order or a direct transfer from a checking or savings account.
You could also use a third-party payment processing service to pay your lender with a credit card, but you'll pay a transaction fee. You could also access money from your credit card to make the payment in the form of a cash advance, but that option comes with steep fees and high interest rates that kick in immediately.
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Can I pay off my car loan with a credit card?
Using a credit card to pay off a car loan typically has to be done via a balance transfer. This process involves moving debt from one place to another, usually to take advantage of a lower interest rate. Balance transfers can be useful tools, but they can also cause debt to spiral if you can't pay your balance off fast enough.
Your ability to pay off a car loan with a credit card depends on your credit card issuer. American Express and Chase, for example, don’t let you balance transfer a loan, while Citi and Discover do. You'll need to ask your issuer about its policy.
You can usually initiate a balance transfer through your card issuer's online portal or by calling the number on the back of your card. You'll need the name of the car loan servicer, the account number and the amount you want to transfer. The card issuer takes it from there. Another option is to use balance-transfer checks that the issuer may have sent you.
Note, too, even if your credit card issuer permits balance transfers of loans, the amount you can transfer to the credit card is limited by your credit line. Sometimes, the amount may even be lower than your credit line. So if the credit limit on your card is $5,000, for example, you can’t move a $10,000 car loan balance.
» LEARN: Rules for debt transfers by issuer
Benefits
You can save on interest
Say the interest rate on your car loan is 3%. For a $15,000 36-month term loan, you’d end up paying an additional $703.92 in interest. But by moving that auto loan debt to a credit card with a 0% introductory APR, you could dodge all interest charges, so long as you pay off the balance before the 0% period ends.
You can get the car title in your hands faster
If you pay off your auto loan in its entirety, you'll own your vehicle outright. That means you have an asset that you can use or sell as you please.
You also won't be at risk of repossession. Because car loans are secured, the lender can repossess the vehicle if you stop making payments. Credit cards, by contrast, are unsecured, so you won't see a tow truck outside your door if you miss your payments. Of course, you shouldn't use this as an excuse to default on your credit card, as that would seriously damage your credit.
Risks
The penalty is steep if you don’t pay off the balance quickly enough
Credit card APRs are usually much higher than those on car loans; some are north of 20%. If you're still carrying the bulk of the auto debt on your card after the 0% period expires on your credit card, you’ll likely end up paying much more in interest than you would have had you kept the original auto loan.
» MORE: Zero percent balance transfer credit cards up to 21 months
Balance transfers often come with a fee
Most credit cards charge a fee to transfer a balance — usually 3% to 5% of the amount transferred. If you’re moving $10,000 in auto debt to a credit card, for example, you could end up paying a fee of $300 to $500. This could be more than what you'd save on interest, especially if you plan to pay off the balance fairly rapidly.
Transferring a large balance can lower your credit score
To keep a healthy credit score, it's best to use less than 30% of the total available credit line on your cards. Putting a big chunk of debt such as a car loan on a credit card can increase your credit utilization ratio, which can shave points off your score.
» MORE: How do I get a higher limit on my credit card?
Should I pay a car loan with a credit card?
Before considering a balance transfer, find out if your car loan lender allows you to make direct credit card payments without a fee. In this rare but ideal scenario, you can charge a car payment to your credit card and then pay off the credit card right away, boosting your credit and possibly earning rewards in the process.
If that's not an option, though, deciding whether to transfer your debt from one method (an auto loan) to another (a credit card), comes down to two things: doing math and a gut check.
Figure out whether you will actually save money on interest. Even if you, for instance, get a 0% introductory APR card that earns cash back by putting a large sum on a credit card, those rewards can easily be canceled out by high interest charges, late payment fees and damage to your credit score.
Next, decide whether you have the financial discipline to pay off your credit card before the introductory 0% APR period ends. If you're already struggling with payments, it may make more sense to reduce them by refinancing your auto loan instead.
