buying a car

Is It Possible to Buy a Car with a Credit Card?

February 3, 2015 By Jeffrey Strain 8 Comments

For those who love their cash-back, airline miles or other reward credit cards, the question, “Can I buy a car with a credit card?” has likely crossed their mind at some point. It makes sense. A car is a large purchase, and being able to put it on a credit card could mean tens of thousands of reward points. If the consumer is going to purchase the car with cash, being able to place the purchase on a credit card would be like getting free reward points while not costing them a cent, as they would simply pay off the balance due in full when the credit card statement arrived. So the question is, why don’t people buy a car on their credit card?

The answer is quite simple. Most car dealerships won’t allow you to purchase the car on a credit card, and for a good reason. If the car dealership allowed you to purchase the car with a credit card, they would need to pay a fee to the credit card company for the transaction. This fee would cut directly into their profit, which gives them no incentive to allow you to do it. Since in many cases the profit margin on the car is in the single percentage digits, accepting a credit car, which could erase as much as 4% of that profit, would hurt their revenue from the sale quite a bit. If you ask most car dealers, they will say they won’t accept a credit card for the purchase of a vehicle.

There is another reason car dealerships may want to avoid credit cards. When a person pays with a credit card, they have the option to dispute the payment, and in such cases, the credit card company will hold the payment while it investigates the claim. There is a chance the company will get a chargeback meaning they lose both the money paid for the vehicle and the car itself. Even if they don’t lose the case, the time they must put into proving the sale was legit and the buyer received exactly what he paid for is a cost they must eat.

If a car dealer does say they will accept payment by credit card, realize that in most cases you’re paying more for the car than you should be. The car dealer would never offer you this option unless they had already factored in the percentage they must pay to the credit card company into the price of the car. If you’re paying more for the car, the rewards you’re getting for the credit card aren’t really free rewards since you’re paying for them in the form of a higher price for the car.

There are exceptions to this rule. In certain circumstances, you may be able to negotiate a partial payment on your credit card for a portion of the price of the car. Sometimes at the end of the month when a salesperson needs an extra sale to meet quota, or to get a sales bonus, it can make sense for them to let you put a portion of the purchase on a credit card even though it will cost them a bit on the sale. In this situation, the monetary loss they may have on the sale will be made up with the bonus incentive they receive for meeting a sales goal.

While still not common, more dealers are accepting credit cards for down payments on cars. There is usually a limit to how much they will accept (usually $5,000 maximum), and they’ll usually only do so when you agree to finance the car through their financing program. The logic here is they will earn back the amount of the credit card costs through the financing.

If you do find a dealership willing to accept a credit card for payment, or partial payment, it’s important to remember this is only a good deal if you have the money to pay off the amount charged in full on the next credit card statement. Interest rates on cash back and reward cards are usually quite high, and any reward you may gain from doing this will instantly disappear with the finance charges you must pay.

(Photo courtesy of Sean MacEntee)

How Frugality Helped Me Negotiate With A Car Salesman

July 19, 2012 By Wixx Leave a Comment

On my last trip to a used car lot, I was able to get exactly what I wanted out of the transaction. The salesman, of course, tried to talk me into getting more car than I needed, and more importantly, more car than I could afford. I wanted to trade my car outright and not pay anything more than taxes, title and the like out of pocket. This is of course not what the dealers wanted me to do. They wanted to convince me that for a mere $50-$100 per month, I could afford a nice upgrade.

The reason for the trip was that my family had simply outgrown our current vehicle. At first we figured that is was going to cost us a premium to get a larger capacity vehicle because we had to make the purchase. I decided to be up front and honest about this need. So I had already told the salesman on the phone that I was coming to look for a 7 passenger van or SUV and I had seen that he had two such vehicles in my price range on the Internet. It helped that this particular dealer understands that with the Internet at my disposal, I have dozens of local dealers with even more potential vehicles to choose from.

He showed me both of the vehicles, and affixed a license plate to them to allow me to take each for a test drive. I drove both of them onto the highway, which allowed me to test them at high speeds, braking, lane shifting, etc. I parked the vehicles right next to my current car which set up a rather humorous conversation with the salesman. I discussed the pros and cons of both the van and SUV that I had tested, and then looked at my vehicle as if I had just noticed it there and said “whoa, this is nice.”

The salesman had a terrified look on his face because he had no idea where my car came from as I showed up while he was eating lunch. I only allowed him to panic for a few seconds before I admitted that it was my car. I showed him the minor ding on the driver’s side fender and explained that a bicycle had fallen from a rack in my garage. He said that it could easily be repaired. Then I showed him the passenger side fender which was in far worse condition. I advised that a Jeep Commander had fallen off of a rack and hit that side. He said that it looked like it would most likely need to be replaced and repainted to match. Then I discussed how my vehicle, Chrysler Pacifica, only had six seats and that I needed to have seven seats in order to take my newest family member with us to church the next morning.

He said that he thought he could work out a deal on the van that I liked, and could recommend a body shop to fix the fender. I told them that actually it would work best if he fixed the fender and I took the van. He told me that dealers really do not like to swap inventory but he could see what could be arranged. His attitude changed when he found out that I owned my car outright. It appears that once he knew that there was no loan to deal with and one less stack of paperwork to fill out, he was more than happy to arrange a fair trade.

I know that the blue book value of my Pacifica was a little higher than the value of the van, but I also know that the van has 10,000 less miles, and does not need to have a fender repaired. Due to my being frugal and paying off the Pacifica early, I was able to make an even trade for the higher seating capacity vehicle that I needed without any additional cost.

As a note, I purchased the 2004 Pacifica in August of 2007. It was a company leased vehicle with relatively low miles that I was able to get for half of its original price. By being frugal I was able to pay off the loan early, not only saving money on interest charges, but also allowing me to swap the vehicle with no additional cost when I needed to trade it in. There is no easier way to avoid being upside down on an auto loan than to not have an auto loan at all!

Five Common and Expensive Car Buying Mistakes

September 13, 2008 By Guest Writer 6 Comments

By Jason Lancaster

As a person who worked in car dealerships for nearly 10 years, I can tell you that a lot of people make expensive mistakes when buying a new or used car. Fortunately, these common mistakes are easy to avoid – here’s what you need to look out for:

Buying for an un-common need

Nearly every consumer is guilty of making this mistake at some point. People often buy a pickup truck so they can haul or tow something, buy an SUV or minivan because they want to make sure that “everyone fits” when family visits, etc. That’s all fine and good when those are common needs, but the trouble is that these are often rare uses. Why not rent a truck when you need to tow, or rent an SUV when family is in town? That way you can buy an inexpensive economy car for every day needs, and then use some of the money you saved to rent a special vehicle if and when you need it.

Buying a car without doing any planning

Before you buy your next vehicle, ask yourself what you’re going to be doing in one, two, five, and 10 years. Are you planning on children? If so, it might make sense to buy a four-door instead of that snappy little coupe. Are you moving to a snowy climate? If so, it might make sense to opt for all-wheel-drive. When you don’t make a plan and you have to trade-in your car prematurely, you lose money (sometimes a lot of money).

Negotiating a purchase on the basis of monthly payment alone

A classic car sales technique is to ask the customer to negotiate payments instead of the vehicle’s cost. Instead of lowering the price to get you a lower payment, dealers can often extend your finance term instead. You end up paying more for the car and more finance charges. So, instead of negotiating on payment alone, negotiate the total price AND payments.

Locking in on features that don’t matter

Consumers often feel that they must have a certain feature on their next car, and while it might make sense to mandate a safety or performance feature, you should never get caught up in “non-essentials.” Take color, for example. Color has nothing to do with the way a car performs, yet I’ve seen customers walk away from a big discount because the only car I had to sell them was the wrong color. The same can be said for other non-essential features like leather interior, sunroofs, stereos, etc. It’s important to get what you want, but it’s also important to get a good deal. If you’re flexible on features (especially non-essentials), you’ll always get a better deal than someone who isn’t.

Impulse buying

Impulse buying is expensive for a lot of reasons, but the main reason is this: Car dealers know how to spot an impulse buyer and they are quick to take advantage of their emotional (and often uniformed) state.

Image courtesy of Ben McLeod