Your car is one of the largest purchases you’ll ever make. So when Chris Mixter decided to buy a 2018 Honda Odyssey he had the bright idea to put the entire purchase on his credit hard. He hoped to end up with enough points for a birthday trip to Italy. But he made a critical mistake, and later admitted the financial move hit a “debacle point.”

Can you buy a car with a credit card?

The Market Watch site warns that even if your credit limit’s high enough, most dealerships won’t take a card. They’d prefer cash so they don’t get stuck with the card issuer’s processing fees. If they will take a credit card, they often tack on a big surcharge.

My colleague Sarah Kennedy covered a story of a dealership walking car buyers through a credit card application so they could get a big cash advance to use for a down payment. The practice is highly unethical because the buyer is left with huge interest payments while the dealer enjoys the cash down.

So what about our friend Chris Mixter? He told Market Watch that he had a United MileagePlus Explorer credit card issued by Chase. He uses it for almost all his purchases and has been able to pay for trips to Aruba and Disney World with the points. So when it came time to buy his family a mini van he decided to put the vehicle on the card. But he admitted he’d never bought “anything bigger than a refrigerator” with the card. And he was in for a surprise.

Chris Mixter bought a 2018 Honda minivan with his Chase credit card

First, Mixter called five dealerships to find one willing to take his card. Better yet, the dealership wouldn’t charge him a fee.  “I think they were willing because it was a 2018 car, and I wasn’t getting any discounts.” So the salespeople were just happy Mixter was shelling out $45k for the car and warranty.

Next, Mixter needed his credit card company to approve the $45k loan. So he called Chase and requested a credit limit increase to cover the purchase. Chase gave him the thumbs up.

Mixter went down to the dealership, picked out his Honda minivan, swiped his card, and drove off the lot. He’d successfully bought a car with his credit card. Best of all, he figured he had  $675 in new points to put toward his Italy trip. La dolce vita, indeed! But there was only one problem, and if you know anything about credit cards you know that the problem is interest.

How much interest is a car loan?

The average loan for a new car is 6.84%. For a used car the average is 12.01%. Over the life of a three, five, or seven year loan that can translate to thousands of dollars. But it’s still better than buying the car with a credit card. They charge 16.99% to 23.99% in APR.

What’s a 24% APR rate on a $45,000 Honda minivan loan? About $10,800. And that’s just the interest Mixter could expect to pay in his first year. In the second year of his loan, he’d be paying interest on the total–which includes the interest from year one.

Because credit card interest rates are so high, most financial advisors tell you not to put anything on your card that you can’t pay off that month. This keeps your yearly average low and your interest payments low.

Mixter already knew this. And he planned to pay off his huge credit card bill ASAP. He figured he could just get a 0% interest car loan, and then use the loan to pay off the card. But he called his bank and they said they couldn’t write him a loan for a new car, he’d have to talk to the dealership about it. If you want to get technical, I guess he didn’t have a “new” car. He’d already driven it off the lot.

The ship had sailed on getting a loan through his dealership, too. He’d already paid them. With his credit card.

Mixter admitted that he panicked a bit. “This was the debacle point of it.” He was looking at a huge credit card loan with a high interest rate that he would be paying off for years.

Finally, Mixter found a work around. He opened three 0% APR balance-transfer credit cards. He used those to pay down his United card from Chase. The new credit cards gave him a 0% interest grace period of 14 months. Disaster averted, for now.

Is buying a car with a credit card worth it?

For less than $700 in points, Mixter went through a lot of trouble.
Matt Schulz, a senior industry expert at the credit card website CreditCards.com, admitted
“It might end up being more hassle than it’s worth.”

Schulz isn’t completely against this financial hack. He said, “The only thing I might have done differently was to get a card that got you triple the points.”

So what about the dealership’s fee for running a credit card? He expects you could talk your way out of that.
“Everything is a negotiating point when you’re trying to buy a car.”

Obviously, you’ll want to know exactly how you’re getting the cash to pay off the credit card balance immediately after the car purchase. Don’t pull a Mixter. And if you don’t have the money, a traditional car loan is a much smarter option than buying a car with a credit card.