How to Pay Off a Car Loan With a Credit Card

Paying off a car loan with a credit card is an unconventional financial strategy. Understanding its feasibility and financial implications is important for anyone considering this approach.

Why Direct Payments Are Uncommon

Car loan lenders typically do not accept direct credit card payments for several reasons. Auto loan servicers prefer cash-backed payment methods such as Automated Clearing House (ACH) transfers, personal checks, money orders, or direct transfers from checking or savings accounts. This preference stems from credit card transaction characteristics.

Credit card processing involves fees, typically 1.5% to 3.5% of the transaction, which lenders must pay. Accepting credit card payments for large, secured loans like car loans would significantly reduce the lender’s profit margins. Additionally, credit card transactions carry chargeback risks, allowing cardholders to dispute charges and potentially causing financial loss for the merchant.

Lenders operate on a business model centered on predictable interest income from installment loans, not on transferring debt to revolving credit. Allowing direct credit card payments would disrupt this model by introducing higher processing costs and the complexities of credit card debt.

Exploring Indirect Payment Strategies

When direct credit card payments are unavailable, indirect methods can be considered. One such strategy involves a balance transfer, where a credit card offers a promotional 0% Annual Percentage Rate (APR) period. This allows transferring the car loan balance to the credit card, ideally paid off before the introductory period expires to avoid interest. Not all credit card issuers permit balance transfers for loans, and the transferable amount is limited by the credit line. Balance transfers typically incur a fee, usually 3% to 5% of the transferred amount, often added to the balance.

Another indirect approach is a cash advance from a credit card, providing funds to pay the car loan. This method is costly, with fees typically 3% to 5% of the advanced amount or a minimum of $10. Interest on cash advances accrues immediately, without the usual purchase grace period, and the APR is often higher than for standard purchases.

Third-party payment processors allow users to pay bills, including some car loans, with a credit card for a transaction fee. Services like Plastiq charge a fee, often around 2.9%. While these services can facilitate payments, the fees can add a substantial cost to the transaction.

Evaluating the Financial Implications

Paying off a car loan with a credit card carries significant financial implications. A primary concern is interest rate differences. Credit card interest rates are typically much higher than car loan rates; for instance, the average credit card APR was around 22.76% in Q2 2024, compared to new car loan rates averaging 6.73% and used car rates averaging 11.87% in Q1 2025. Transferring a lower-interest car loan to a higher-interest credit card can substantially increase debt cost if not paid off quickly.

Beyond interest, fees accumulate. Balance transfer, cash advance, and third-party processing fees can add hundreds or thousands of dollars to the total debt. For example, a 3% balance transfer fee on a $10,000 car loan would add $300 to the debt. These fees can negate perceived benefits like credit card rewards, as costs often outweigh rewards.

A large credit card balance can negatively impact a credit score. Credit utilization, the amount of credit used relative to available credit, is a significant factor in credit scoring models, accounting for about 30% of a FICO score. Maintaining a high credit utilization ratio (generally above 30%) signals increased financial risk and can lower a credit score.

Transferring an installment loan to revolving credit can introduce a prolonged debt cycle. Car loans have fixed repayment schedules, while credit cards offer revolving credit, making it easier to carry a balance indefinitely. If the credit card balance is not paid off before promotional periods end or high interest rates apply, debt can grow, potentially leading to financial strain.