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My husband was in an accident with our family’s van so we have to buy a new one. The insurance is paying off our existing note in full. We have found a pre-owned van that we want to purchase as a replacement and we are considering how we should pay for it.

We know dealerships (this vehicle will be purchased from a dealer) HATE cash purchases. We’ve been flat out denied service before when we took out our check book. Plus, we aren’t comfortable taking that much of a hit to our savings right now. So, we won’t be purchasing outright.

The option we’re contemplating is for one of us purchase the van with our high limit travel rewards credit card, for which we’d get 2miles per $. Then, in order to avoid interest, the other spouse would “buy” the van with a traditional auto loan from our credit union from the spouse as a “private seller.” In our perfect little scenario, we’d get the miles, the van, and a monthly payment/interest rate we can afford. Our goal is a much needed vacation. It’s been a tough year (which is only half over.)

Does anyone see any pitfalls we don’t? Is it likely the credit union (or any lender) will permit this? My husband and I both have excellent credit (800+), about equal income, and little debt besides our home (mortgage + HELOC, HELOC is paid off, mortgage is ahead of schedule.) We realize that this might be an unheard of option because it isn’t feasible. But we’re hoping that it’s unheard of because it isn’t feasible for most people...our financial situation being better than all our peers, and our parents, we only ever hear about traditional lending scenarios (ie just take on more debt). Thanks in advance for folk’s input.

We will most likely be getting a settlement from the insurance company since my husband was not at fault, which we will use primarily to pay for the van, but, 1) we need the vehicle now, and insurance claims take months to settle; and 2) we never count our chicks before they hatch, so to say. We only do/buy things we can afford now. Worst case scenario is we make payments the life of the loan, best case is we pay it off w/insurance money.

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    You'll probably be hard-pressed to find a dealer that would let you buy a car with a credit card. Dealers aren't going to want to pay the interchange fee on a transaction like that (which is where the bank gets the money to offer you miles). Unless you're willing to pay 2-3% more for using the card (which would be an expensive way to get miles). – Justin Cave Jun 8 at 13:22
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    We have never bought a car, used or new, except for cash. No dealer has ever lifted an eyebrow. So this surprises me. – ab2 ReinstateMonicaNow Jun 8 at 23:49
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    Unless you get really lucky, you won't be able to charge a significant amount on a CC. The BMW dealer we got a used car from was going to let me charge $5k. However, the check clearing system denied my check (I assume since it was for a high amount) and it was after bank hours so I couldn't call them so the dealer let me charge the full amount (over $10k) to make the sale (we live 3 hours away). – topshot Jun 17 at 12:54
  • Keep in mind that some loan pricing schedules will call for a higher interest rate if you buy from an individual vs a dealer. So, by passing the loan through a private party before using the loan to buy it, you may end up with a higher loan rate. Also, unless your state has an exemption for sales to family members, you're going to be paying sales tax twice. These factors will almost certainly eliminate any benefit you'd get from the rewards miles. – dwizum Sep 11 at 19:02
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To answer the question, yes, you can get a car loan to "buy" a car from your spouse. You can even get a car loan on a car that you already own outright! Now, the bank may ask why you are doing this any you may not get a great interest rate (since it's a sign that you are cash-poor), but it is possible. But, I don't think you need to.

We know dealerships HATE cash purchase

No, they make you think they hate cash purchases so that you'll use their financing, since they get a kickback for initiating a new loan that they can then sell to some bank for a small profit. Use this as a negotiating point. Say you'll finance the car through them if they take, say, 5% off of the car price. Then pay off the loan as soon as possible (it usually takes a few days to get all of the paperwork through to set up a servicer). Otherwise, you're walking away. You can even tell them that you're going to pay off the loan the next day. They don't care; they are getting their kickback from the financing company whether or not you keep the loan.

Walk away power is the single greatest negotiating leverage you have.

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It sounds like your main goal here is to take advantage of your credit card miles. Unfortunately I don't think you'll be able to use the CC in this case. The larger the purchase price, the less likely the seller will want to accept a CC as payment. Car dealerships may accept a small amount with a CC but almost always won't let you pay for the entire car with one. If they were willing to, then mathematically they should be willing to drop the price by at least 2% if you didn't use a credit card. It doesn't hurt to ask though, but if you do make sure it's after you negotiate the purchase price. Otherwise the dealer would likely just inflate the price by 2% knowing you're going to pay with a CC.

Perhaps your best course of action would be to negotiate the price of the car, and bring both your CC and the authorization from your bank. If by some miracle they let you pay for the entire car with your CC, then great! If not, then finance it with the credit union. Beware of mixing them though. For example, if the dealer says you can pay $2K with a CC and the rest with the loan, your loan may end up being $2K less and then you'll have to be able to pay off the $2K within 30 days to avoid high interest on the CC.

As a side note regarding your comment about dealers hating cash purchases, that is definitely not universally true. In fact, most dealers prefer cash purchases since more than half of car purchases don't close because the financing falls through. If you have excellent credit and verifiable income, which apparently you do, then they may prefer to finance to you, but that is certainly not the norm.

  • There’s no country stated in the question, but in EU member countries it’s illegal to give discounts for not using a credit card, since that’s the same thing as charging extra for credit card users, which is banned. Basically, negotiate a cash price and then say “By the way, I’ve decided to pay by card”. They can’t then withdraw the discount. – Mike Scott Jun 8 at 15:28
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    @MikeScott - based on OP's profile being from Rhode Island, I assume this question is for the US, where it is allowed and is commonplace for companies to charge more to process a CC (or give a discount if you don't). – TTT Jun 8 at 16:05
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    @TTT - last I read, the CARD act, it’s not legal to charge more to use a credit card, but a discount for cash is permitted. (And yes, I realize it’s a matter of semantics) – JTP - Apologise to Monica Jun 8 at 17:02
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    @JoeTaxpayer - Many of my bills charge extra if you pay with a credit card, and they are national corporations. I suspect something must have changed since then. – TTT Jun 8 at 19:41

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