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Bigger purchases like cars usually require a down payment, which is money upfront. Unfortunately, not all of us have thousands of dollars at the drop of a hat to put money down on the big purchases we need to make.
Even if you do have the cash to make a down payment, sometimes it makes sense to use a credit card instead. For example, putting a big purchase on your card can get you closer to earning a signup bonus. We’ll talk more about this below.
So, can you put a down payment on a credit card? Yes, it’s possible, but there are some things to think about before you do. Here’s what you need to know about putting a down payment on a credit card along with a list of the best credit cards to consider for this purpose.
Beware of a Cash Advance
One way to use a credit card to get money for a down payment is to get a cash advance from your card. A cash advance requires you to put a balance on your credit card to get that amount in cash. Then you make payments on the balance until you pay it off. While this can be an option to get quick cash if you’re in a pinch, it can be expensive.
Most credit cards charge a fee equal to a percentage of the cash advance, on top of the high interest on the balance. Even if it’s a small fee, the amount you’re putting on your credit card can add up pretty quickly. Cash advances also don’t count as purchases so you can’t earn rewards or cash back on a cash advance. Below are some better ways to use your credit card for a down payment.
Related: Things to Consider Before Getting a Credit Card Cash Advance
Use a Credit Card with 0% Intro APR
Many cards offer an interest-free introductory period, usually anywhere from 6-18 months. That means that you won’t pay interest on purchases made during this period, as long as you pay off those purchases before the introductory period ends.
Say you put a down payment of $3,000 on a credit card with an 18-month interest-free introductory period. You want to make sure you have a plan to pay off the full $3,000 within 18 months to completely avoid paying interest. That would mean making payments of about $167/month. That doesn’t sound too bad, but make sure you consider the credit card payment on top of your car, insurance, and mortgage/rent payment.
As long as you have a plan to pay off the credit card balance within the interest-free period, this can be a good option to free up some cash and still make your large purchase. Here are some good cards with interest-free periods.
Chase Freedom Unlimited®
The card_name offers 0% Intro APR on Purchases for 15 months, then a variable APR of 20.49% - 29.24%.
Earn an extra 1.5% on everything you buy (on up to $20,000 spent in the first year) – worth up to $300 cash back. That’s 6.5% on travel purchased through Chase Ultimate Rewards®, 4.5% on dining and drugstores, and 3% on all other purchases.
There’s a $0 annual fee and great cash back rewards:
Enjoy 5% cash back on travel purchased through Chase Ultimate Rewards®, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and 1.5% on all other purchases
Learn more in our Chase Freedom Unlimited® Review
Capital One SavorOne Cash Rewards Credit Card
The card_name offers 0% intro on purchases for 15 months, then a variable APR of 19.99% - 29.99%. You can also earn the following welcome bonus:
$200 Cash Back after you spend $500 on purchases within 3 months from account opening
There’s a $0 annual fee, and you can earn cash back on everyday purchases:
3 % Cash Back on dining and at grocery stores (excluding superstores like Walmart® and Target®). 3 % Cash Back on popular streaming services and entertainment. 8 % Cash Back on Capital One Entertainment purchases. 1 % Cash Back on all other purchases.
Use a Credit Card to Earn a Signup Bonus
If you’re working on earning a signup bonus for a new credit card, putting a big purchase on your card can help. Let’s say you need to spend $3,000 in three months to earn the bonus. If your down payment is $1,500, that gets you halfway to earning your bonus.
Making a big purchase to earn your signup bonus is best for those who can pay off the purchase at the end of the month. Otherwise, you’ll be paying interest on the balance which isn’t worth doing to earn the signup bonus. Here’s a credit card to consider with a valuable welcome bonus:
Chase Sapphire Preferred® Card
With the card_name, you can earn the following welcome bonus:
Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s $750 when you redeem through Chase Ultimate Rewards®.
There’s a $95 annual fee, and the card offers excellent rewards:
Enjoy benefits such as 5x on travel purchased through Chase Ultimate Rewards®, 3x on dining, and 2x on all other travel purchases, and $50 annual Ultimate Rewards Hotel Credit, plus more.
Learn more in our Chase Sapphire Preferred® Card Review.
Use a Rewards Credit Card
Rewards credit cards get you points or cash back as you spend. Rewards can range from one to five points for every dollar spent or 1% to 5% cash back, and sometimes more.
For a down payment on a car, most rewards credit cards will allow you to earn either one point per dollar or 1% cash back on this type of purchase. That means if you make a $3,000 purchase, you can earn 3000 points at one time or $30 cash back.
Some rewards credit cards offer 2% cash back on all purchases. In this case, if you spend $3,000 on your card, you can earn $60. However, as we mentioned above, you’ll want to make sure you can pay off the purchase at the end of the billing cycle. Even if you do earn rewards, paying interest on your credit card balance can quickly cancel out your rewards. Here are some rewards cards to consider:
Chase Freedom Unlimited®
We mentioned the card_name above for its 0% intro APR offer. But it also has excellent cash back rewards including a minimum of 1.5% cash back on all eligible purchases.
Wells Fargo Active Cash Card
With the Wells Fargo Active Cash Card, you can earn 2% cash back on all purchases. This card also offers a welcome bonus, 0% intro APR, and there’s no annual fee.
Chase Sapphire Preferred® Card
We mentioned the card_name above for its excellent welcome offer. But another reason we like this card is that points are worth 25% more when you use them to purchase travel through Chase. So if you make a $4,000 purchase, you’ll earn 4,000 points typically worth about $40. However, if you redeem those points through Chase Ultimate Rewards, they are worth $50 in travel. Your points can go even further if you transfer them to a Chase travel partner.
Related: Top Travel Rewards Credit Cards
Pros and Cons of Putting a Down Payment on a Credit Card
Pros
- You can reap some pretty big rewards. If you can put your down payment on a credit card and pay it off right away, you may as well get the points or the cash back. If you don’t have the cash to pay off the card right away, this is still a viable option as long as you use a credit card with 0% intro APR.
- You can free up some cash. You may have the money to pay for the down payment, however, you may want to use it on something else, say building your emergency fund. If you get a credit card with 0% intro APR and can pay off the balance before the intro period ends, that allows you to save your cash for emergencies.
- You can build your credit. If you are able to successfully make a big purchase and pay it off on time, this can be a huge boost for your credit history. You’re showing credit bureaus that you can responsibly pay off a large sum.
Related: Simple Ways to Improve Your Credit Score
Cons
- You may have multiple payments to juggle. If you’re using a credit card with 0% intro APR, you’ll want to make sure you’re paying it on time, every month. Adding this payment to your other bills can be a lot to handle.
- It could eat up your credit limit. If you’re going to put a large sum on your credit card that will be paid down in smaller chunks, be wary of the credit limit on that card. Once you get close to your limit, it can start to negatively affect your credit score.
- You could end up paying a lot in interest. If you’re going to be paying interest on your down payment, keep your APR in mind. Most credit cards have significantly higher rates than dealers and banks that can give you loans. We always suggest paying off your credit card in full, unless you have a card with 0% intro APR. In that case, you have more time to pay off the purchase, but still, make sure to get it done before the 0% intro period ends.
- Some dealerships or vendors just won’t let you do it. For all purchases, accepting credit card payments usually means the vendor incurs some sort of cost on their end. For that reason, not all places will accept a credit card payment, especially on a purchase that big. Make sure you verify the vendor will accept a credit card as a form of down payment.
Related: Mistakes That Will Lower Your Credit Score
FAQs
What purchases require down payments?
With a few exceptions cars and real estate are the biggest purchases that usually require down payments.
How can I avoid paying interest?
Interest on credit cards is accrued on a monthly basis. To avoid paying interest on your credit card purchases, you need to make sure you pay off the entire balance at the end of the billing cycle. This is obviously easier to do the smaller your balance is. For that reason, it is advisable to make a larger purchase, like a down payment on a card with an interest-free introductory period.
Will I pay more interest on a credit card or a loan?
Generally, credit cards have much higher interest rates than personal, mortgage, or auto loans. Even through a car dealership, your typical interest rate is lower than credit cards by several percentage points. That’s why you want to avoid paying interest on a credit card if you use it to make a down payment. You either want to pay the credit card balance in full at the end of the month or use a credit card with a 0% APR offer.
Final Thoughts
Making a down payment on a credit card can be done. But, proceed with caution. Because of the high-interest rates, it is generally not advisable to use a credit card for a down payment unless you have the cash on hand to pay it off. In that case, you can enjoy reaping rewards points or cash back. If you don’t have the cash and need to make monthly payments, you’ll want to get a credit card offering 0% intro APR. But, again, remember to pay off the balance before the introductory period ends.
