Should You Pay Your Car Bill With a Credit Card? Pros, Cons and Options

When an auto loan payment comes due each month, you likely have several options to pay it While checks or bank transfers may be most common, some wonder if putting that bill on a credit card is possible

Paying a large recurring bill with a card could help you earn rewards points and miles. However, credit card payments on car loans also come with drawbacks. Weigh the potential pros and cons to decide if it makes sense for your situation.

The Appeal of Paying Car Bills With a Credit Card

On the surface, routing auto loan payments through a credit card seems appealing. Potential benefits include:

• Earning rewards: Most credit cards give you 1% to 5% cash back or points or miles for every dollar you spend. Big monthly bills can quickly accumulate rewards.

• Convenience: You already use your card for other purchases. One less bill to keep track of.

• Improving credit: Responsible card use demonstrates credit management skills.

• Float time 20-25 day grace period before payment is due

Using a single payment method and earning “free money” while improving your credit makes this option enticing. But downsides to watch out for can quickly outweigh the perks.

Key Downsides to Paying Auto Loans With Credit Cards

While rewards and convenience might attract you to this idea, some big drawbacks should give you pause:

• Credit card fees: Most lenders charge 2-4% processing fees on card payments. This surcharge eats into any rewards earned.

• Higher loan interest: Putting extra charges on a maxed-out card can increase your credit utilization ratio and lower your credit score. This can translate to higher loan rates.

• Possible loan default: Some lenders prohibit card payments. Attempting it anyway could trigger loan default.

• Cash advance fees: The transaction may process as a cash advance, not a purchase, incurring fees of 3-5% or more.

• Prepayment penalties: Your loan terms may impose early repayment fees if you overpay with a card.

With fees potentially outweighing rewards, this option makes less financial sense. And accidentally causing a loan default is incredibly risky.

Factors That Determine If Credit Card Payment Is Allowed

Whether you can pay auto loan bills with plastic often depends on two key factors:

1. Loan terms: Review loan documents to see if card payments are prohibited. Violating terms risks default.

2. Lender policy: Even if not specified in loan terms, the lender likely has internal rules against card payments. This is common policy.

Many standard auto loan agreements do not specify payment methods. But lenders generally forbid credit card payments due to high processing costs. Paying by card requires them to reimburse 3-4% fees charged by card companies. Most lenders build these costs into their interest rates and do not want to incur extra expenses.

While not always stated explicitly, you can assume card payment is not allowed unless the lender confirms it in writing. Never try this without direct approval, or you jeopardize the loan.

Steps to Request Paying Car Bills via Credit Card

If your loan terms are silent on payment method, you may be able to get approval to pay with plastic. Follow these steps:

1. Contact lender and ask if credit card payment is allowed. Get clear confirmation in writing.

2. Clarify if any fees apply for card payments. Factor fees into cost/benefit analysis.

3. Ask how to process monthly payments to avoid cash advance fees and triggers.

4. Review statement after first payment to confirm it processed properly as a purchase with applicable rewards.

5. Continue monitoring statements regularly to ensure on-time processing and no payment snafus.

Without written lender approval, assume card payment is prohibited. Never attempt it as an experiment. The cons generally outweigh potential rewards.

Other Options for Paying Auto Loans with Credit Cards

If your lender denies direct credit card payments, you still have options to earn rewards on auto loans. Consider these alternatives:

• Use card for regular spending and pay loan with bank account funds.

• Take out a cash advance on your card to get a check to pay the loan. This incurs fees but earns rewards.

• Transfer balances from the auto loan to a 0% introductory APR credit card.

• Open a new 0% card and make purchases on existing cards to pay down the auto loan aggressively.

• Use a debit card linked to a rewards checking account to pay the loan.

With a bit of strategic planning, you can optimize credit card perks while still following lender rules on loan payments.

Best Practices for Paying Car Bills with Plastic

If your lender confirms you can pay auto loan bills with a credit card directly, keep these tips in mind:

• Use a card that earns the highest rewards on large purchases.

• Avoid overspending beyond your monthly loan payment. Stick to the exact required amount.

• Set payment reminders and process the payment 3-5 days before due date in case of processing delays.

• Check statements to ensure payments process as regular purchases, not cash advances.

• Pay the card balance on time every month to avoid interest charges.

• Notify lender immediately if your card is lost/stolen and update payment details.

• Review loan terms before trading in/selling the car. Some require full payment of remaining balance.

With caution and close monitoring, paying your car loan via credit card can provide some financial perks. But explore the option thoroughly before proceeding, as the risks often outweigh potential rewards.