Why I Put My Car Down Payment on a Credit Card

Putting a car down payment on a credit card can sometimes be a smart financial move.

Recently, I purchased a new car in order to accommodate my growing family. When I bought the car, I paid for it with money I had saved. However, I had to make a down payment before completing my purchase because the vehicle was still in transit and I couldn't take it home right away.

I was given several options for how to make my $5,000 down payment, but I chose to put it on a credit card. Here's why.

The big reason I put my down payment on a credit card

The reason I put my car down payment on a credit card was a simple one.

By charging the $5,000 that I had to put down, I was able to earn credit card rewards points. My card provides 2.265% rewards bonus, so the $5,000 charge I made ended up providing me with $113.25 -- just for making a purchase I would have had to make anyway.

Because of the valuable credit card rewards I was able to earn, I would actually have liked to charge more of the cost of my vehicle. Unfortunately, car dealerships typically have strict caps on the amount they will allow you to charge.

My dealer originally wanted to limit the amount I could put on my card to just $2,500, but I was insistent on charging the $5,000 down payment, and ultimately they agreed rather than risking losing the entire sale.

Charging a car down payment can also help you to qualify for a new cardmember bonus if you've recently opened a new card and need to meet spending requirements. I wasn't in the market for a new card at the moment because I'm really happy with the one I have, so this wasn't an option I was interested in -- but it's a good approach if you can time opening a new card to the time you're buying a new vehicle.

Be aware of this possible downside of putting a car down payment on a credit card

Now, charging my car’s down payment made sense for me. It was the right financial decision because I was able to immediately pay off the entire $5,000 I charged on the card for my down payment. As a result, I did not have to pay interest on the card. That would have dwarfed the value of the rewards I earned for charging the down payment.

If you aren't going to be able to pay off your card in full, then this technique probably isn't the best one for you. You should seriously consider saving more money so you have it available to cover the total costs of a reasonable down payment.

That way, you can take out a smaller car loan and reduce the chances you'll end up owing more than your car is worth -- as well as benefiting from the option to charge the down payment, earn card points, and pay it off right away .

If you can't do that, then making a smaller down payment and borrowing more on a lower interest car loan could be a better solution than charging so much on a card.

Ultimately, though, if you can repay your card, then there's no reason not to charge as much of your vehicle's cost as your dealer will allow.