How To Pay For A Car on Credit Card (to Earn Points!)

Want to Pay for a Car on a Credit Card?

First things first… some tips

Early on, I spoke about how using Credit Cards for absolutely everything is effectively “free money”. A common response though is, “it’s only a few points…”. A few points, is no doubt, absolutely insignificant. Getting 8 points on your coffee is… garbage.

But what about if/when you’re buying a car? 50k points for paying for a car on a Credit Card is a different story! Don’t forget, 50k points is probably at least the equivalent value of a SYD-MEL return, regardless of what program you’re thinking about.

Before I get into the guide, here are some of my opinions regarding car purchases.

Opinion 1:

A car is a vehicle to get you from A to B. Nothing more. Nothing less.

This means my personal view on cars could be different to yours. I probably would not spend over $45k on a car. It’s just not worth it when I could spend $25k and have something that is 90% as good (for 55% of the price!).

Opinion 2:

Don’t have the cash for a car? Don’t buy it

Need a car? Buy a car you can afford.

Still want a car that you can’t afford? Ok – my blog probably isn’t geared towards you then.

This is another way of saying: Do not get a loan on a car. Why?

  • A car is a depreciating asset. In fact, it is a rapidly depreciating asset.
  • The interest rate on car loans is high. The interest rates for cars, from what I have observed, tends to be generally at least 2% higher than that of home loans. In the current market, that is ~6% p.a.
    • Can’t get a “Secured Loan” (i.e. have no other assets?)? Your interest rate will be even higher because you’ll need to get an “Unsecured Loan”
  • Banks consider car loans risky. This is why the interest rates on cars is higher than for homes – if you ever default, they know they won’t get the loan value back by reselling your car. Different story with property!

If you are able to arrange a salary sacrifice or Novated/Operated Leasing arrangement to use/own a car through your company, this would be a different story, but this simply looks at a simple scenario of where you either have the option of paying “cash” (up front) or paying in installments.

Ok, enough waffling. Onto the actual guide – How To Purchase a Car on a Credit Card

As is the case with some of my posts, this was inspired by a friend who actually asked this question:

How do I buy a Car on a Credit Card?

You do not need to read this guide if you have a Credit Card with a Credit Limit greater than the purchase price of the car. Simply make your purchase on your Credit Card as you would at any other shop.

Here are the steps:

  1. Find out if the seller accepts Credit Card payments
  2. If they do, find out what the surcharge is for Savings (EFTPOS)/Mastercard/Visa/AMEX. Determine whether you are happy with this surcharge. If the surcharge is too high, either try and negotiate a lower surcharge, or forget about trying to pay on your Credit Card.
  3. You now need to “artifically” increase your Credit Limit. Send a BPay payment to your Credit Card which will result in your Credit Limit being higher than the purchase price of the car.
    • This means if your remaining Credit Limit is $3,000 and you’re purchasing a $25,000 car, you’ll need to Bpay $22,000. Bpay $22,500 to be safe (to give yourself a buffer)
  4. You’ll need to give your financial instituion ~2-3 days for the payment to clear, so give yourself plenty of time and do not leave this last minute.
  5. Make the payment at the car dealer – just as you would make any other Credit Card payment anywhere! Enjoy your points!!!

Depending on the type of Credit Card you’re using, you’ve likely netted yourself anywhere from $125 to $1000 worth of points (on a $25,000 car) just by paying on a Credit Card. Don’t forget to pay off the balance in full before the due date to avoid interest charges.

Just be aware that certain card providers do not really like this practice (of artifically increasing your credit limit) – reasons, I believe, are money laundering related. However, as far as I am aware, I do not believe there are any legal issues with doing this, nor should it affect the merchant.

Seller doesn’t accept Visa/Mastercard/AMEX? Purchase Westfield XS Gift Cards

If the seller does not want to process this transaction as “Credit” (Visa/Mastercard/AMEX), then you could use (ideally) an American Express Credit Card (such as the AMEX Explorer) to purchase Westfield XS Gift Cards. Westfield XS Gift Cards can be loaded with a maximum value of $995 and have a $4.95 card service fee. These Gift Cards are “EFTPOS” gift cards and are accepted anywhere EFTPOS/Savings/Debit is accepted.

This method will involve you having to purchase many multiples of Gift Cards due to the $995 limit, but will likely result in lower transaction costs for the seller and potentially a higher possibility that they’ll be willing to entertain your desire to pay by card.

The drawback? As I said, you’ll have to purchase many multiples of them. For a $25,000 car, you’ll need 25x Gift Cards of $995 each and one more Gift Card of $125. Total cost? $25128.70. You’ll also probably want to check that the seller is actually willing to do this for you, as it will obviously take some time to process the payment from 26x cards!

For an $128.70 additional outlay, using the AMEX Explorer’s point earn as an example, you’ll earn a total of 50,256 AMEX Membership Rewards Gateway points for the purchase, which equates to 37,692 Velocity points. This is enough for 4x SYD-MEL one way flights (not including taxes). You’re therefore effectively paying $32.18 for a SYD-MEL one way.

Have you had experience in paying for a car on a Credit Card? I have!

Questions, comments, opinions? Don’t be shy!

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