Credit cards are a great way to earn frequent flyer points every day, but using one to buy your next car could be a boon for your points balance.
That’s because credit cards award points based on how many dollars you’ve spent – so charging a high-value purchase like a shiny set of wheels is an easy way to increase that expenditure from a payment you’d have otherwise been making anyway.
But it can come at a cost in the form of credit card surcharges. Australian Business Traveller looks at the strategy behind paying for your car with plastic and crunches the numbers to show why it can be worth the fuss.
Buying a car with your credit card: the basics
First things first: most car dealers have credit card facilities nowadays, but many won’t advertise that fact unless you ask – and even then, some will only allow a small deposit using your card with the balance expected by electronic transfer or bank cheque.
For example, one dealership visited by Australian Business Traveller allowed customers to pay up to $2,000 by credit card with no surcharge (including by American Express and Diners Club), but insisted on other payment methods for the balance of the purchase.
Instead of taking ‘no’ for an answer, that’s your chance to negotiate – such as by offering to cover the costs of processing your card transaction by paying a surcharge, so that the dealer winds up with the same amount of money in their account as though you’d transferred cold hard cash.
As a guide, most businesses pay between 0.5% and 1.5% to process Visa and MasterCard payments and between 1.5% and 3.5% to process American Express and Diners Club cards, with average rates falling between the two extremes.
Does paying that surcharge make sense?
Let’s assume you’re splashing out on a $75,000 car and that you have an American Express card which earns 1.5 Qantas Points per dollar spent, uncapped.
A 2% surcharge on that amount would be $1,500 while a 3% surcharge comes up as $2,250: the latter taking your total payment to $77,250.
That’s an expensive surcharge, but it can prove worthy of the investment.
At the higher 3% rate, you’d pocket a whopping 115,875 Qantas Points at a ‘cost’ of $2,250, so in other words, you're buying points by paying that surcharge.
That’s enough for a first class upgrade from Australia to London via Dubai (60,000 points), and a first class upgrade from Sydney to Dallas (50,000 points) and also a business class upgrade on short flights like Sydney-Melbourne from a flexible ticket (5,000 points), with 875 points to spare.
If you can convince the dealer to pay the first chunk surcharge-free as they might usually allow on deposit payments, then even better.
What to look out for when using your credit card
For some, the biggest hurdle here will be their credit limit – in which case you could split your purchase across several different cards or you could consider over-paying your credit card to temporarily increase how much you can spend.
You’ll want to contact your card issuer for advice before doing this as not every bank allows it: and even if you have a ‘no limit’ charge card such as an American Express Platinum or Centurion, it’s still a great idea to give warning of any unusually large purchases.
Also note that some providers like Citibank award no points at all on transactions greater in value than your usual set credit limit or where the card is $10,000 or more in ‘credit’ (after an over-payment): so again, talk to your bank before approaching a car dealer.
We know you’re smart and you’ll pay your credit card off in full to avoid those high interest charges, but also be mindful of any points capping rules that may apply, even on Platinum cards.
For example, NAB’s top-tier Qantas Rewards Premium AMEX awards points only on spends of up to $25,000 per monthly statement period, while the similar NAB Velocity Rewards Premium AMEX caps that at a lower $20,000 per statement window.
But if you have the perfect combo – a card with no points capping, a high credit limit (or a flexible bank) and a dealer willing to play ball – buying your next car could take you around the world, not just down the road.
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