Hitting spend for signup bonuses fast: charging a car down payment

You can charge all or part of a car purchase...but be careful! (click to enlarge)

First, let me be very clear about one thing: I am not suggesting that you finance a car on a credit card. Unless you have a 0% promotional interest rate on actual spend as opposed to balance transfers that lasts for multiple years, the interest on the average credit card, not to mention a rewards card, will cost you dearly. Instead, I am referring to simply putting some or all of your auto down payment on a credit card rather than writing a check.

Dealers will let you charge a car

You may not be aware that dealers will let you purchase a car with a credit card. That is not an outlandish notion for a used car that may cost a few thousand dollars, but charging $25,000 or far more on a credit card sounds strange to most of us. Of course, there are a litany of reasons to not buy a car with a credit card, primarily the interest rate on cards versus a car loan. But as always when using credit cards to accrue points and miles, financial literacy and responsibility are critical. If you are not certain you can and will pay off the credit card charge for your down payment, resist the temptation to charge your down payment. Ideally, unless you have the money in the bank and your charge is a direct substitute for writing a check on the spot, you would be better off financing a larger amount on a relatively low interest auto loan. Fortunately, I found myself in "direct substitute" situation this past weekend.

Completing the initial spend on my Gold Delta SkyMiles® Business Card

In June I wrote about selecting a new rewards credit card. I wound up going with the Gold Delta SkyMiles® Business Credit Card from American Express OPEN. I was over halfway to the $4,000 initial spend required to earn 60,000 bonus Delta SkyMiles thanks to the purchase of a new Apple MacBook Pro. Last week, I was faced with a $2,300 repair for the turbo on my (thankfully, now former) car, a 2013 Audi Q5. Unfortunately, the repair shop only took Visa and MasterCard so I put that repair on my Chase Sapphire Preferred Card in order to earn Chase Ultimate Reward Points.

I should have nicknamed my Audi "The Money Pit" given the thousands of dollars in repairs over the last two and a half years. (This is not a car review site, but take my advice when I tell you to avoid that enticing Audi you may be looking at...you will regret it!) My wife and I decided it was best to cut our losses and replace the Q5 before the next multi-thousand dollar engine light illuminated. So, this past week weekend, I was off to a metro Atlanta Honda dealer where I bought a 2017 Honda Accord Touring sedan. After agreeing on the deal, we wanted to put down a nominal sum above what "The Money Pit" brought in trade. 

My wife brought the checkbook, but at some point, I had the realization that I could charge the down payment and earn a nice chunk of points. Unlike the repair shop, the dealer did accept American Express so my additional payment, in addition to earning Delta SkyMiles, put me over the top on the $4,000 spend requirement to earn the card's signup bonus. When the day was over, I had 60,000+ Delta SkyMiles headed my way, the threat of more cash thrown down "The Money Pit" lifted, and a very nice but affordable new car.

Bottom line: a responsible use of credit

The cautions of buying a car with a credit card are well taken, especially for those who don't handle credit well. (Of course, if you do not handle credit well, you are playing with fire if you dive into the points and miles credit card game!) In this case, we only charged a down payment based on our financial analysis of the new car deal. (I am a financial analyst by day...of course I overanalyzed the deal!) However, as I noted, we had our checkbook with us and were willing and able to write a check for the down payment. Now, we will simply write that check to American Express.

If you are planning to put a cash down payment on a vehicle, consider using a credit card and immediately paying that charge off. Perhaps you are not in a market for a car but maybe you have an upcoming large purchase for which you plan to write a check. This might be a good opportunity to satisfy a large initial spend requirement and earn a large sign-up bonus of points or miles if you can charge it without any additional costs for not paying cash. Just be sure that you never give yourself an excuse to spend money you do not have in order to get points. Those points will be worth far less than the interest you will wind up paying!