What Can’t You Buy With a Credit Card?
Learn the various reasons credit cards aren't universally accepted for all purchases and services.
Credit cards are a ubiquitous payment method, offering convenience for many purchases. However, despite their pervasive presence, they are not universally accepted. Their use can be restricted by law, limited by the nature of the transaction, or simply not permitted by individual merchants. Understanding these limitations is important for consumers to navigate various payment scenarios.
Legally Restricted Purchases
Certain transactions are legally prohibited from being made with a credit card, typically due to federal or local regulations designed to prevent illicit activities or control specific industries. For instance, direct purchases of illegal substances are universally restricted. Similarly, federal regulations impact the use of credit cards for online wagering, and many physical casinos do not permit direct credit card use for purchasing gambling chips. These restrictions aim to prevent debt accumulation for high-risk or unlawful activities.
Credit card use also faces federal limitations for certain goods like marijuana. Despite its legality in many states for medical or recreational purposes, federal law still classifies marijuana as a controlled substance. This leads most credit card processors and networks to prohibit its purchase with their cards, aligning policies with federal statutes. These legal mandates supersede merchant preferences, making credit card transactions for such items impossible.
Transactions with Built-in Limitations
Beyond legal prohibitions, credit cards are often not accepted for certain transactions due to their financial nature, card network policies, or practical considerations. One common scenario involves attempting to pay another credit card bill directly with a credit card. While direct payment is generally not allowed by card issuers, consumers might use indirect methods like a balance transfer or a cash advance. These methods typically incur significant fees, such as balance transfer fees ranging from 3% to 5% of the amount transferred, and immediate, higher interest rates on cash advances.
When a credit card is used to obtain cash, it is treated differently from a standard purchase. Cash advances come with distinct fees, often 3% to 5% of the amount advanced or a flat fee of around $10, whichever is greater. Interest on cash advances begins accruing immediately without a grace period, and at a higher annual percentage rate (APR) than for regular purchases. This makes them a costly way to access funds and they rarely qualify for rewards points.
Purchasing financial instruments like stocks or bonds directly with a credit card is generally not permitted by brokerage firms. While indirect methods, such as using a cash advance to fund a brokerage account, exist, they are discouraged due to high fees and immediate interest. Leveraging high-interest credit card debt for investments, which inherently carry risk, is impractical and financially unsound.
Similarly, using a credit card for large asset purchases, such as a down payment on real estate, is typically not feasible. Mortgage lenders do not accept unsecured loans like credit card advances as a source for down payments because they require verified, “seasoned” funds. Even if a cash advance were obtained, title companies and real estate agencies require bank-certified funds, such as a cashier’s check or wire transfer, to finalize transactions. The substantial fees and high interest rates associated with cash advances also make this an expensive and risky proposition for such large sums.
Merchant Discretion and Alternative Payments
Even for items that are not legally restricted or subject to built-in financial limitations, individual merchants retain the right to refuse credit card payments. This discretion often stems from the costs associated with processing credit card transactions. Merchants incur interchange fees, network fees, and other processing charges, which can significantly impact profit margins, especially for small businesses or low-value transactions. To offset these costs, some businesses may set minimum purchase requirements for credit card use, which are legally permissible up to $10.
Other reasons for merchant refusal include concerns about chargebacks, which can result in financial losses and administrative burdens, or a preference for simpler cash-only operations. Some businesses might also decline specific card networks, like American Express, due to higher processing fees compared to other networks. Businesses are generally required to clearly communicate their payment policies to customers.
When credit card payments are not accepted, numerous alternative payment methods are available. For everyday transactions, cash and debit cards are widely used. For larger payments or transfers, options include personal checks, cashier’s checks, wire transfers, and Automated Clearing House (ACH) payments, which facilitate direct bank-to-bank electronic transfers.
Digital wallets, such as Apple Pay, Google Pay, and PayPal, offer convenient electronic payment solutions often linked to bank accounts or debit cards. For significant purchases like real estate, secured loans from financial institutions serve as a standard alternative to credit cards.