Credit cards work great for everyday merchant transactions, but for high-dollar private-party car transactions, they’re hard to use and expensive.
We’ll break down why credit cards fall short for buyers and sellers. But we won’t leave you hanging; there’s a new payment method that gives you the speed and convenience of a card swipe without the high fees.
Buyers are the ones pushing for credit card usage in a car transaction; there’s almost no attraction for sellers. Some buyers mistakenly think they can come out ahead by using a credit card—until they face the following realities.
| Buyer rationale | Reality | |
|---|---|---|
|
Rewards |
I’ll get a ton of cashback rewards if I run this car transaction through my credit card. |
Stripe processing fees wipe out the benefits of any rewards—and then some. |
|
Credit |
I’ll build credit if I put this car on a credit card and pay it off over time. |
There are much better (and less expensive) ways to build credit. |
|
Financing |
A credit card is an easy way to finance a car I can’t afford. |
Credit card interest rates are horrendous. A traditional auto loan gives far better interest rates than credit card debt. |
Private sellers don’t have the infrastructure to run a buyer’s credit card. Both parties will need to use an intermediary processing solution, such as Stripe. This introduces complexity and cost.
Creating an account with a payment processor isn’t like signing up for a streaming subscription. It involves verification and onboarding, which can be time-consuming and frustrating.
Navigating a new financial platform can be daunting, especially for a one-time transaction. Buyers and sellers need to learn how to use the system correctly to avoid mistakes.
Credit card processing fees typically run around 2.9% plus a small fixed fee. Let’s break down what this means for a $75k car transaction using Stripe:
That’s over $2k lost to fees. A buyer motivated by 2% cashback will be disappointed when the seller insists that the buyer cover Stripe fees (after all, it’s the buyer insisting on using a credit card, so it’s only fair). There go any credit card rewards. The buyer winds up net negative $631.79 after all is said and done.
A private car transaction is done “as-is,” meaning that the buyer has the responsibility to do their research and make sure the car is solid. Still, disgruntled buyers sometimes try to cause trouble for sellers if they experience mechanical trouble or other issues.
An unhappy buyer complains to their credit card company, which usually sides with its customer against the seller. While it’s unclear whether the credit card company would ever be successful at clawing back the funds from the seller, it can cause unnecessary trouble for them.
Most sellers avoid credit cards for this reason alone: they want to be done with the car when they’re done with the car.
A credit card is a terrible way to finance a car. Credit card companies charge 15%–30% interest rates on balances carried longer than 30 days.
Let’s run the numbers for someone with decent credit who wants to finance a $20K car. They qualify for a 14% subprime auto loan, and their credit card company charges 24.99% on carried balances.
Putting the $20K purchase on their credit card, the buyer faces two scenarios:
Compare this to the 5-year 14% APR subprime auto loan. They pay a total of $28,457 for the $20k car, coming out more than $7k ahead of the second credit card payment scenario, and more than $50k ahead of the first scenario.
Credit card debt is a poor credit-building strategy that can seriously harm your financial health. A car purchase will probably max out your credit limit, increasing your credit utilization ratio. This harms your credit score instead of improving it.
You’ll lose the chance to diversify your credit mix with an installment loan, which can positively affect your score. Better alternatives for credit building include the following:
These options build credit safely and sustainably, without the financial risks of a high-interest credit card for a major purchase.
DealNow bypasses the expense, risk, and inconvenience of other payment methods. It’s as convenient as a grocery credit card purchase while offering a full workflow to handle every stage of a car transaction. Here are some of its benefits for buyers and sellers.
DealNow is a complete platform that makes car transactions safer and more convenient.
The safest payment method is DealNow. Unlike credit cards, checks, or physical cash, DealNow does instantaneous, verified transfers of any amount directly between the seller and the buyer.
DealNow’s platform secures transactions by:
To avoid scams, use DealNow. Its identity verification, title checks, and secure platform significantly reduce the risk of fraud compared to traditional payment methods.
PayPal and credit cards are both fairly safe methods to pay for a car.
If the seller has the ability to run a credit card—and doesn’t insist on charging you extra to cover processing fees—you should be fine.
PayPal has a limit of $60k per transaction, so if the car is under that amount, it’s viable. The seller will get hit with some pretty hefty processing fees, so don’t be surprised if they expect you to cover part or all of them.
If you’d like to skip the extra expense and hassle, use DealNow to pay for that car. It’s so smooth and easy, you’ll never want to pay for a car any other way.
If the seller has the ability to run your debit card (most don’t), and your daily spending limits allow it, you should be fine to pay with a debit card for that car.
In most cases, debit cards aren’t an option because private sellers lack the infrastructure to accept them.
Private car sales can be risky. Here’s how you can protect yourself from fraud:
DealNow is the easiest way to close your own vehicle deal, anytime. It’s the safe and simple way to avoid fraud, sign documents, and instantly transact, all in one app.
