Most car dealers and lenders will not accept credit card payments directly, but you have workarounds
You cannot usually hand your credit card to a car dealership or loan servicer and pay your monthly bill that way. Most lenders prohibit it because they want to avoid the fees credit card processors charge them. However, you can pay your car loan with a credit card through a third-party payment service, a cash advance, or by paying off the card balance with money from another source and using that to pay the loan.
Each method has different costs and consequences. A payment service might charge 2 to 3 percent of the amount you send. A cash advance from your credit card typically costs an upfront fee plus a higher interest rate than regular purchases. Paying off the card with a personal loan or savings means you are moving the debt rather than reducing it. Understanding what each option costs you is the only way to know whether paying your car loan this way makes sense for your situation.
Key Takeaways
- Third-party payment processors like Plastiq or PayPal can send money to your car lender on your behalf, but they charge a percentage fee that usually ranges from 2 to 3 percent.
- A credit card cash advance lets you withdraw money to pay the loan directly, but you pay an upfront fee (often 3 to 5 percent) plus a higher interest rate from day one with no grace period.
- Some credit card issuers offer balance transfer checks that you can mail to your lender, though these also carry fees and higher interest rates.
- Paying your car loan with a credit card only makes financial sense if you are earning rewards that exceed the fees, or if you are buying time before paying the card off with other funds.
Using a third-party payment service to send money to your lender
Services like Plastiq, PayPal, and Square Cash let you authorize a payment to almost any business, including car loan servicers. You provide your credit card information to the service, and they send a check or electronic transfer to your lender on your behalf. The lender receives the payment as if you had sent it yourself.
The cost is a percentage fee charged by the payment service. Plastiq charges 2.5 percent for most payments. PayPal's fee varies depending on the payment method and destination, but typically ranges from 2 to 3 percent. You pay this fee on top of your regular payment amount, so a $500 car payment becomes $512.50 or more.
This method works best if your credit card offers rewards that exceed the fee. If you earn 3 percent cash back on all purchases, and the payment service charges 2.5 percent, your net gain is 0.5 percent. If your card earns 1 percent cash back, you lose money. Before you use a payment service, calculate whether the rewards you earn will cover the fee.
Taking a cash advance against your credit card
A cash advance lets you withdraw money from your credit card's available credit, either at an ATM or through your bank. You then use that cash to pay your car loan directly. The lender sees a regular payment from your bank account; the credit card company sees a cash advance.
Cash advances cost more than regular credit card purchases. Most cards charge an upfront fee of 3 to 5 percent of the amount you withdraw, meaning a $500 advance costs $15 to $25 when ready. The interest rate on a cash advance is also higher than the purchase rate — often 5 to 10 percentage points higher — and it starts accruing the day you withdraw the money. There is no grace period like there is for regular purchases.
This option is expensive unless you pay off the advance within a few days. If you are using a cash advance to float a payment temporarily while you wait for income or a refund, the cost might be worth it. If you are planning to carry the balance, the interest will quickly exceed any benefit.
Balance transfer checks from your credit card issuer
Some credit card issuers send balance transfer checks to cardholders. These are checks drawn against your credit card account that you can write to anyone, including your car lender. You mail the check to the lender, and the amount is added to your credit card balance.
Balance transfer checks usually come with a fee of 3 to 5 percent and a promotional interest rate that is lower than your regular purchase rate but higher than a standard balance transfer. The promotional period typically lasts 6 to 12 months, after which the regular interest rate applies. If you plan to pay off the balance within the promotional period, this can be cheaper than a cash advance. If you carry the balance beyond the promotion, the interest rate jumps and the total cost rises.
Not all credit card issuers offer balance transfer checks, and not all cardholders receive them. Check your credit card statements or log into your online account to see if checks are available to you. If they are not, you can call your issuer and ask whether they offer them.
Paying your credit card off with other funds to free up credit
If you have savings, a personal loan, or another source of funds, you can pay your credit card balance in full, then use the freed-up credit to pay your car loan. This does not reduce your total debt — you are moving money from one account to another — but it can help if you need to spread payments across multiple months or if you are waiting for funds to arrive.
This approach has no direct fee, but it does have an opportunity cost. If you use savings to pay off the card, you lose any interest that savings would have earned. If you take out a personal loan to pay off the card, you are paying interest on the personal loan instead. The math only works in your favor if the interest rate on the alternative source is lower than the interest rate on your credit card, or if you are buying time before a larger payment arrives.
Why most lenders do not accept credit cards directly
Car loan servicers, mortgage lenders, and utility companies typically refuse direct credit card payments because of the fees that credit card networks charge merchants. When a business accepts a credit card, the card network (Visa, Mastercard, American Express) and the cardholder's bank take a cut — usually 2 to 3 percent of the transaction. For a large payment like a car loan, that fee adds up quickly.
Some lenders also see credit card payments as a sign of financial stress. If a borrower is paying a car loan with a credit card, they may be short on cash and at higher risk of default. Blocking credit card payments is one way lenders try to discourage this behavior.
A few lenders do accept credit cards, usually through a third-party processor that charges you the fee directly instead of the lender. Before you commit to paying this way regularly, contact your lender and ask whether they have a preferred payment processor or whether they accept credit cards at all.
When paying your car loan with a credit card makes sense
Paying your car loan with a credit card is worth considering only in specific situations. If your credit card offers rewards that exceed the payment fee, and you can pay off the card balance when ready, you come out ahead. If you are in a temporary cash flow crunch and need to buy a few weeks before your next paycheck, the cost might be acceptable. If you are trying to meet a minimum spending requirement for a credit card bonus, the fee might be lower than the value of the bonus.
In almost all other cases, paying your car loan directly from your bank account is cheaper and simpler. If you are considering this method because you cannot afford your regular payment, contact your lender about a payment deferment or loan modification instead. These options do not cost you a fee and do not add new debt.
Frequently Asked Questions
Will paying my car loan with a credit card hurt my credit score?
It can, but not because of the payment itself. If you use a payment service or cash advance, your credit card balance increases, which raises your credit utilization ratio. A higher utilization ratio can lower your score. Once you pay off the card, the utilization drops and your score recovers. The car loan payment itself will still show as on-time to your lender.
Can I use a debit card to pay my car loan?
Most lenders accept debit card payments directly through their website or phone line. Debit cards do not carry the same processing fees as credit cards, so lenders are more willing to accept them. Check your lender's payment options online or call to confirm whether debit is available.
What if I use a credit card payment service and the payment does not reach my lender on time?
Payment services typically send funds within 1 to 3 business days. If your payment is due on a specific date, send it at least a week early to account for processing time. If a payment is late because of a service delay, contact the service to document the issue, then contact your lender to explain. Most lenders will not report a late payment if you can show the payment was sent on time.
Does paying my car loan with rewards points work the same way?
Most credit card issuers do not let you redeem rewards points directly to a third party like a car lender. You typically have to redeem points as a statement credit, cash back, or a check to yourself, then use that money to pay the loan. This eliminates the fee advantage of using a payment service, so it is usually not worth the extra steps.