How I Bought a Car with My Credit Card, Earned a Bunch of Rewards and Didn’t Pay Any Interest

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Some auto dealerships will let you use a credit card to buy a car. I did, and I earned a bunch of rewards in the process. But be careful with your approach so you don't get stuck paying high-interest fees.

Credit cards are one of my favorite financial tools. When you manage them wisely, credit cards can help you build your credit rating. Additionally, credit cards offer valuable fraud protection, which can help you keep your money safe. But one of my favorite benefits of using a credit card comes in the form of points and miles.

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The Benefits of a Good Rewards Credit Card

A rewards credit card gives you the opportunity to get something extra out of purchases you needed to make any way. Over time, all those trips to the grocery store, tanks of gas and take out orders can add up to cash back in your pocket or perhaps points and miles you can redeem for free travel.

Want to learn how to travel for free using credit card rewards? This beginner's guide can help you get started. For now, keep reading to see how I recently bought a car with my credit card and racked up a nice pile of rewards in the process.

Step One: I Saved in Advance

I'm not a big fan of a car payment. So, when my husband and I paid off our last vehicle loan around five years ago, we took a portion of the money we'd been paying our former lender each month and started a savings account.

The two of us earmarked the cash we saved for both vehicle repairs and a future vehicle purchase. After several years of this habit, we had enough cash available to purchase a used car when the time came.

Step Two: I Decided on the Best Credit Card to Use to Buy a Car

Eventually, one of our vehicles died, and it was time to buy a replacement for our family. Instead of getting a cashier's check from the bank to cover the purchase, I decided I would pay for our new car with a credit card.

Now, I would have liked to open a new credit card here to earn a sign-up bonus with my purchase. But the timing wasn't right. I was eight months pregnant with a high-risk pregnancy during the middle of a global pandemic.  I had two elementary-aged kids at home 24/7 due to COVID-19 related school closures. And, I was working full-time. (Fun times!)

Needless to say, life was hectic. Meanwhile, our need for a vehicle was immediate.

Since I didn't have the time to apply and wait for a new credit card, I decided to use my Chase Sapphire Reserve®. With my Sapphire Reserve, I would earn points for each dollar I spent on the vehicle purchase. But, when I redeem those points with a Chase airline or hotel partner in the future, I knew that I might score an amazing travel deal and maximize my rewards value.

Step Three: I Found a Car Dealership Willing to Accept a Credit Card

I knew that not every car dealer would be willing to let me pay for my vehicle purchase with a credit card. Businesses have to pay processing fees when they accept credit card payments, sometimes as high as 3% of the transaction.

So, my husband did some online research and found several reliable used vehicles at local dealerships that were a good fit for our family of five. We set out to test drive them and pick our favorite.

Once we knew which vehicle we wanted, we started negotiating the price. After a bit of haggling (and letting the dealer know that we were prepared to pay for the vehicle in full that day), the car dealer knocked almost $1,000 off an already competitive sticker price. Only after we agreed upon a purchase price did we ask if we could pay for our purchase with a credit card.

We were lucky. Despite the merchant processing fees, the auto dealer was willing to let us pay for the $8,500 car purchase with my Sapphire Reserve card. We had been prepared to walk away and keep looking, but in the end it wasn't necessary.

Step Four: I Paid My Credit Card Balance In Full.

The following month, I used our savings to pay my credit card bill in full. Paying off the statement balance by the due date helped me avoid paying expensive interest fees. At the same time, I was able to earn an extra 8,500 Chase Ultimate Rewards points that I wouldn't have gotten if I'd paid with cash.

Maximizing My Rewards

I have no regrets about purchasing a car with my credit card. Because I hold the Sapphire Reserve, the 8,500 Chase Ultimate Rewards points I earned are worth 1.5 cents each if I redeem them for travel through the Ultimate Rewards portal. However, I plan to transfer the points to a Chase airline or hotel partner down the road and hopefully get even more bang for my buck.

Of course, I am a little disappointed that I missed the opportunity to use this large purchase to meet one (or even more than one) minimum spend requirements for a new credit card sign-up bonus. If our family hadn't needed a vehicle so quickly, this is the approach I would have taken. Then, my $8,500 purchase might have helped me qualify for a credit card with an attractive sign up bonus, such as one of the following.

• American Express® Gold Card
• Capital One Venture Rewards Credit Card
• Chase Sapphire Preferred® Card

Some other cards also come with great sign-up bonus offers currently, like The Platinum Card® from American Express and the Southwest Rapid Rewards® Priority Credit Card. However, as I already hold these accounts, I wouldn't be eligible for a new welcome bonus offer.

3 Tips for Buying a Car with a Credit Card

If you're thinking about buying a car with a credit card, here are three tips from my experience that you might find helpful.

1. Save the purchase price first. Most credit cards have high-interest fees compared with other types of financing, like auto loans. (The Federal Reserve says the average credit card interest rate — for accounts that assessed interest — was 16.28% in the fourth quarter of 2020.) If you don't have enough cash set aside to buy a vehicle outright, you can probably find a better financing option.

2. Find a good rewards credit card sign-up bonus. Consider boosting your points-earning potential with a new rewards credit card (or two), and use your large purchase to satisfy minimum spend requirements.

3. Pay off your credit card balance immediately. It's always best to pay your full statement balance by your due date. This good habit will help you avoid costly interest and maintain a positive payment history on the account as well.