Can you put a deposit on a credit card?


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Larger purchases like cars and homes usually require a down payment, which is money up front. Sadly, not all of us have thousands of dollars at the drop of a hat to put money on the big purchases we have to make. There are several compelling reasons to consider putting down a down payment on a credit card. Let’s explore all the options and weigh the pros and cons.

Cash advance

The only way to use a credit card for a down payment on a mortgage is to get a cash advance. Basically you put a balance on your credit card in order to get that amount in cash and then you make payments like paying off a regular credit card balance.

This is an option if you are looking for the cash, but it really is a more viable option if you already have the money and want to reap the rewards. Suppose you already have money, but have a credit card that will reward you for a cash advance balance. Now you have several thousand dollars in rewards and you can pay off the balance immediately. However, be careful with the costs. Most credit cards charge a percentage of the cash advance, in addition to the interest on the balance. Even though this is a small percentage, because mortgage amounts and down payments are normally higher (20% down payment is the norm), the amount you put on your credit card can be overwhelming. accumulate fairly quickly.

Related: Things to Consider Before Getting a Credit Card Cash Advance

Best credit cards for down payments

If you’re going to use a credit card to make your down payment, deciding what you’re looking for is the first step. Is the most important thing to be uninteresting? Looking to reap big rewards? Here are some tips to consider.

Reward Cards

Most reward cards work with points or cash for dollars spent, which can range from 1 to 5 points for every dollar spent and usually between 5% and 20% cash back. This means that for a payout of $ 3,000 you can earn up to 15,000 points at a time or $ 150. Points of this amount are difficult to accumulate with daily expenses.

Travel / Airline

  • Fast southwest Rewards: This card offers three tiered options for personal use: the Plus Card, the Premier Card, and the Priority Card. Each has an introductory offer as long as you spend $ 1,000 within the first three months of opening your account. A down payment could easily cover these start-up expenses. If you live somewhere where the Southwest is a viable option (can’t beat the free checked baggage and open seats!), Or if you already travel to the Southwest, this introductory offer goes a long way. The downsides are the high annual fees and the high APR which range from $ 69 to $ 149 and 15.99 to 22.99% respectively.
  • More specific reward cards: Almost all hotel or airline franchises have their own credit cards, with some offering more rewards than others. Think about where you like to shop or travel and what works best for you. Get rewarded for your big purchase by earning points for your next vacation.
  • Discover the® Cash back: When it comes to refund cards, this one is pretty convincing. Discover will actually be the cashback you earn in the first year. This means that if you earn $ 150 in the first year, you will get back $ 300 in total. And with their cash back rates, you could earn that much with a $ 3,000 down payment.
  • Apple Card: This card doesn’t offer the best cash rewards, but it’s the low fees that make it an attractive option. First, you can check your approval conditions without affecting your credit score (they wait to withdraw your credit until you know the conditions). They also don’t charge annual fees, late fees, or overseas transaction fees, so it’s a pretty cheap card to maintain. As for cashback, you earn 3% on Apple purchases (which won’t help you when using this card for a down payment), 2% when using Apple Pay (again , not useful unless the seller accepts Apple Pay), and 1% when using their physical card. Perhaps the most compelling thing about this card is its payment tracking. Each month you can adjust your payment amount on a wheel that tells you how much interest you will pay based on your payment. Visually, they make it easier to keep track of your payments and interest.

Related: Best Travel Rewards Credit Cards

Cards with introductory periods at 0% interest

Many cards give you an interest-free introductory period, typically 6-18 months. This means that you will not pay interest on purchases made during this period, as long as you refund those purchases before the introductory period. Say, for example, you put a $ 3,000 down payment on a credit card with an 18-month interest-free introductory period. You want to make sure that you have a plan to pay off the entire $ 3,000 within 18 months to completely avoid paying interest. That would mean making payments of around $ 167 / month. That doesn’t sound like too much of a big deal, but be sure to consider this in addition to your car and paying your insurance or paying the mortgage / rent.

As long as you have a plan to pay off your deposit in the interest-free period, this can be a good option to free up some cash while making your big purchase. Here are some good cards with periods of no interest.

  • Wells Fargo Cash Wise Visa: In addition to a 15-month interest-free period, this card offers $ 150 cash back when you spend just $ 500 in the first three months. That’s a pretty big amount of money for how much you have to spend. This also offers cash advances.
  • Citi Double Cash Card: This card is different because you earn money as you spend and pay. So 1% cashback on purchases, then 1% when you refund those purchases. It could be good if you have the cash on hand – you can earn double the points right away.

Advantages

You could reap some pretty big rewards.

  • As mentioned above, you can get some pretty big rewards by making a big purchase like this on a rewards credit card. So much so that even if you have money for a down payment, it may be worth checking to see if your dealership accepts credit cards. If you can put your deposit on a credit card and pay it right away, you can get the points too.
  • If you don’t have the money in a lump sum, this is still a viable option as long as you have the cash each month to meet the payments. Be very careful here – the rewards may seem nice at first, but unfortunately you can’t pay your credit card bills with airline miles.

You don’t need to have all of the cash for a down payment.

  • Few of us are blessed with thousands of dollars to spend when we need them. It goes without saying that putting a down payment on a credit card can help you get your big purchase without having to save for months and months. This is a huge plus, especially if you need your purchase right away. Again, just make sure you have the monthly cash on hand to pay it off fairly quickly, even if you have to pay a little interest.

You can build your credit.

  • If you manage to make a big purchase and pay for it on time, it can be a huge boost to your credit history. Showing the credit bureaus that you can responsibly repay a large sum will tend to positively affect your credit. Making timely car or mortgage payments will already help your credit score, and adding that can boost your credit even more.

Related: Does Your Credit Improve When You Buy A Home?

The inconvenients

You will have several payments to juggle.

  • In order to responsibly track your credit card payments, you’ll need to play around paying a set amount each month, in addition to the payments you’re already making on your big purchase (car, mortgage, insurance) and other bills. If you make a deposit directly to a seller, you’ll have one less payment to juggle.

It could eat away at your credit limit.

  • If you are going to put a large sum on your credit card which will be paid off in smaller pieces, beware of the credit limit on this card. Once you get past this ratio, it can start to negatively affect your credit score, especially if this ratio is to be maintained for several months.

You could end up paying a lot of interest.

  • If you’re going to pay interest on your down payment, keep your APR in mind. Most credit cards have significantly higher rates than the dealers and banks that can give you loans.

Some providers just won’t let you do this.

  • For all purchases, accepting credit card payments usually means that the seller incurs some sort of cost on their end. For this reason, not all places will accept payment by credit card, especially for such a large purchase. Make sure to verify that the seller accepts a credit card as a down payment. Being forced to pay several thousand dollars in cash shouldn’t surprise you.

Related: Mistakes That Will Lower Your Credit Score

Faq

With a few exceptions, cars and real estate are the biggest purchases that usually require down payments.

Interest on credit cards is accrued on a monthly basis. To avoid paying interest on your credit card purchases, you need to make sure you pay off the entire balance before the end of the month. It’s obviously easier to do the smaller your balance. For this reason, it is advisable to make a larger purchase, such as a down payment on a card with an interest-free introductory period.

In general, credit cards have much higher interest rates than personal, mortgage, or auto loans. Even at a car dealership, your typical interest rate is several percentage points lower than that of credit cards. Take this into account when deciding whether you want to put down a down payment on a car or a mortgage, rather than doing everything through a bank or dealership.

Final thoughts

Making a down payment on a credit card can be done – either by means of a cash advance, or by placing a balance directly on your card. But in any case, proceed with caution. Due to the high interest rates and fees, it is generally not recommended to use a credit card for a down payment unless you have the cash on hand and are ready to reap all the rewards (cashback or points). If you can’t be rewarded, at least make sure you have a 0% interest period and have the monthly cash flow to meet the payments.

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About Matthew R. Dailey

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