I’ll start by saying there are much safer ways to finance a car purchase than using a credit card (like a car loan). Credit cards for car purchases aren’t common, and definitely aren’t straightforward.

Let’s start with the main reasons using a credit card to buy a car is considered financially risky.

The problems with using a credit card to buy a car

There are two significant issues:

• Problem 1: Credit card repayments are self-motivated, rather than strictly set out by a loan provider. This could lead to a huge financial blowout.
• Problem 2: Interest rates are much higher than personal loans.

Car loans are generally a safer option because they’re designed for making regular repayments with relatively low interest (7.45% p.a. on average) over the loan term. Loan terms can be negotiated to suit your finances.

Credit cards don’t work the same way. Unless you pay off the entire balance each month, you’ll be charged interest (which is 20.99% p.a. on average). The interest will accrue rapidly on a large balance, and it can take many years and a lot more money to pay off compared to a car loan.

To show you what I mean, here’s an example comparison on a $10,000 car purchase and the same repayment amount each month:

Unfortunately, credit cards come with other charges and limitations, too:

• Surcharges. A car dealership that accepts credit cards will likely pass on a surcharge of 1-2%. So, an $8000 car with a 1.5% surcharge will cost an extra $120.
• Credit limits: The price of the car often exceeds people’s credit card limit. Maxing out or overborrowing can hurt your credit score.

Could it work for you?

I won’t sugar-coat it: You need to be very, very financially trustworthy to benefit from using a credit card for a car purchase. Otherwise, you run the risk of paying far too much in interest, or hurting your credit score by missing repayments.

So, if you’re savvy and responsible, you could use a credit card to:/

• Earn rewards points. You need to make sure you’ll earn points from the merchant (the car seller), which might mean contacting your card issuer. Just remember you’ll be charged interest, which means you’re getting less value from your points.
• Pay for a cheap car. The cost of the car needs to be less than your credit limit. You can request a limit increase from your bank, but again, ask yourself if it’s a better option than a flexible car loan.
• Leverage a lower interest rate. Some credit cards may have interest rates lower than or similar to a car loan. However, remember there are still surcharges and credit limits to take into account.
• Use a 0% p.a. introductory offer. Check the fine print before you make a purchase, and work out how much you need to pay off each month to clear the balance before the 0% p.a. offer ends.

Even though there are cases where a credit card might work, it’s a risky play with the potential to rack up huge interest charges. Do your due diligence and make sure you understand how your credit card works before you head to the car dealer.

A Quick-Reference Guide to the Pros and Cons

Yes, it’s possible to buy a car with a credit card in Australia, but there are significant limitations and a number of financial factors to consider. It’s generally not a straightforward or recommended method for financing a large purchase like a car.

Buying a car with a credit card is a niche strategy that only works for a very specific type of buyer. It is generally best for:

• Someone with a high-limit rewards card who can pay off the entire balance immediately with cash they already have.
• A buyer with a low-rate card who is purchasing an inexpensive car (under $5,000) and can pay it off within a short, interest-free period.
• A consumer who has a specific 0% interest on purchases offer they can leverage.

For most people, a traditional car loan or a secured personal loan is a much safer and more affordable option due to their lower interest rates and structured repayment plans.