Credit card enthusiasts will do just about anything to earn rewards points –even putting a car down payment on a credit card. While it might sound crazy, doing it right can be a great way to rack up rewards for free. Do it wrong, though, and you’ll pay big time.
Earning credit card rewards with a car down payment
In February 2016, my wife and I were in the market for a new car. After visiting two dealerships, we found a car that suited our needs and drew up paperwork with a finance manager.
When asked how much we planned to put down, we told the manager $3,000. Then, I asked how much of that we could put on a credit card. We had the cash available, but I wanted to see if we could get any rewards out of the deal. He told us that we could put the full $3,000 on our credit card with no fee.
To cover the down payment, I used the Citi Double Cash Card. It offers one percent cash back when you make a purchase then another one percent when you pay it off. I paid off the card a few days later.
As we walked out of the dealership, we not only had a new car but earned $60 in cash back.
The pitfalls of using a credit card for a car down payment
Tyler Philbrook, from Clearwater, Fla., had a different experience. The 27-year-old pharmacy tech made a $1,000 credit card down payment on a car when he was 21. “I had that amount in cash,” he said, “but I had just got a brand new card that I thought getting points would be amazing.”
But before he paid off the card, what he describes as “young foolishness” took over. He ultimately used the cash for other things, such as eating out and going out with his friends and then-girlfriend.
His credit card debt ballooned with the card’s 23% APR. “Not knowing any better,” said Philbrook, “I kept adding to the card till it was maxed out.”
It took a year to pay off the $1,000 purchase alone. Six years later, Philbrook is finally paying off the last of his credit card debt. Looking back, he wishes he would have either paid for his car in cash or paid off the card as soon as the charge went through.
When it’s OK to put a car down payment on a credit card
Making a car down payment with a credit card is a great way to rack up rewards. But before you whip out your credit card at the dealership, you’ll want to ensure the following.
1. You have the cash on hand to pay off your debt
Putting a car down payment on a credit card doesn’t make sense unless you have the cash to pay off the debt immediately. Even if your credit card has a 0% APR promotion, you don’t want to risk carrying the debt after the promotional period ends.
If you do have the cash to pay off the purchase, don’t hesitate to pay it off as soon as possible. The value of the rewards you earn can be wiped out by interest costs.
2. The dealership accepts credit cards
Not all dealerships allow you to make a down payment with a credit card. This is generally because of the merchant fees they have to pay for the transaction. If you’re set on getting rewards, consider calling the dealership to verify their policy.
Of course, if you’re getting a good deal on a car but the dealership won’t allow you to pay with a credit card, you might be better off missing out on the rewards.
3. The dealership doesn’t charge a fee
Because dealerships pay a merchant fee when you use a credit card, they sometimes charge a fee of their own to pass the cost onto you. If that fee is higher than the rewards rate on your credit card, pay with cash instead.
Don’t let credit card rewards cloud your judgment
The next time you buy a car, consider using a credit card to earn rewards on the down payment. If you don’t have the cash on hand to pay off the card, or you simply can’t put the down payment on your card, stick with cash.
Whether you’re putting a car down payment on a credit card, consider the rewards a bonus rather than a goal. Spending money that you don’t have or paying extra to get rewards defeats the purpose.
In fact, if you’re not careful you might end up losing money by trying to earn rewards. So, be sure to pay off your card in full as soon as possible. Not only will you avoid interest charges, but having too high a balance when your statement closes can hurt your credit.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.53% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|