Can You Buy a Car in Canada with a Credit Card?

Putting expenses on your credit card is great! You can get rewards like cashback or offset the payment for purchases made on the credit card.

And one of the most significant purchases for each person in Canada is buying a car. You may be wondering if it's possible to put this expense on your credit card, and if so, is it something we recommend? In this post, we will go into the details.

Can you put your car purchase on a credit card?

Most places that you go to accept credit cards. Unfortunately, car dealerships are not one of them!

It is very rare for a car dealership to accept credit cards, so you can't buy a car with a credit card in most dealerships.

There are multiple reasons why dealerships don't accept credit cards as a form of payment. Here are just a few of the more important ones:

• Processing fee: Whenever the transaction is put on a credit card, the merchant has a processing fee, anywhere from 1% to 3%. On smaller transactions like food, that number is typically a few dollars, but this fee could amount to hundreds of dollars for a purchase like a car that is thousands of dollars. Most dealerships don't want to pay this fee, so they don't accept credit cards.
• Reduce the risks of chargeback: A charge happens when a customer disputes a charge on their credit card. Although chargebacks in cases where the merchant has the papers are rare, fighting this dispute will be time-consuming. Not to mention the financial risk to the merchant. So, for these reasons, the merchants don't typically bother taking a credit card to protect themselves.
• Cash flow concerns: Accepting credit cards for car purchases could delay funds being deposited into the dealership's account. Given the large amounts involved, this could pose significant cash flow challenges for the business.

Read More: Credit Card Surcharge in Canada

Should you put your car purchase on a credit card?

Now, let's say you find a car dealership that says they accept credit cards. In some scenarios, putting this purchase on your card could be great; in others, you should avoid using your credit card.

When not to use your credit card:

• If you can't pay it back right away: If you plan on putting the purchase on your card and not paying it back right away, then it's better that you don't put this purchase on your card in the first place. Credit card interest rates are one of the highest among different types of loans, and if you make such a big purchase on the card and do not pay it back right away, you will be paying a huge amount of interest each month, putting you into a very bad financial spot. Financing the car, getting a personal loan, or even leasing the car might be better options. Compare their interest rates and choose the option that is better for you.
• The processing fee gets passed to you: There might be car dealerships that agree to put the purchase on a credit card, but you need to make sure that they are paying the processing fee, not you. Because the processing fee could be anywhere from 1% to 3%, this fee could be a substantial amount that you wouldn't have to pay if you used an alternative payment method. So always check this before finalizing your purchase.
• You are concerned about your credit score: If that purchase is left on your card because the purchase is a significant amount, it will drive up your credit utilization rate, potentially impacting your credit score. So, if you are planning to use your credit score for loans soon, rethink whether it's worth the risk to put this car purchase on your card or not.

When to use your credit card:

• For Credit Card rewards: If none of the conditions above are true, then it might be a good idea to put the purchase on your card, especially if you have a card with good reward rate. With one of the best rewards credit cards in Canada, you will be able to earn a few hundred dollars in rewards because of this substantial purchase.

Conclusion

In summary, buying a car with a credit card in Canada is typically not an option due to dealership policies on processing fees, chargeback risks, and cash flow concerns. If you do find a dealer that allows credit card payments, it's crucial to consider the interest rates, potential impact on your credit score, and whether the processing fee might be passed on to you. Using a credit card may be beneficial for collecting rewards on a large purchase, but only if you can pay off the balance immediately. Always weigh the pros and cons and compare them with other financing methods to make the most financially sound decision for your situation.