Should car dealerships accept credit card payments?

The amount of car dealerships that accept credit cards are increasing in popularity. But is it the right move for your business? While credit cards offer speed and flexibility, they also come with their own set of challenges.

In this article, we’ll explore the pros and cons of accepting credit card payments for car purchases, the payment solutions that can help you process these transactions, and alternative methods that might work better for your dealership. By the end, you’ll have a clearer picture of whether credit cards are a good fit for your business.

Understanding credit card payments in high-value transactions

When buying a car, many people think about cash, checks, or financing. But credit cards? They’re becoming a surprising option for high-value purchases. Here’s why.

Credit card payments are convenient. A buyer might already have a card with a high enough limit or rewards that make the deal sweeter—think cashback or airline miles. Plus, using a credit card can add a layer of security, thanks to fraud protection and chargeback options.

For car dealers, accepting credit cards in high-value transactions can set you apart from competitors. It’s about meeting customer expectations in an increasingly digital world. Shoppers today expect flexibility. The ability to pay with a card—even for big purchases—can make the process smoother and faster for them.

That said, these transactions aren’t without challenges. Transaction fees are one of the biggest concerns, which we’ll dive into later. But for now, keep in mind that credit card payments are growing in popularity—even in big-ticket industries like auto sales.

What are the pros of accepting credit cards for car purchases?

Accepting credit cards can be a game-changer for car dealerships, offering both convenience and competitive advantages. Here’s why:

• Buyers can pay quickly without needing cash or cashier’s checks.
• Customers with rewards or cashback incentives are more likely to use their credit cards for big purchases.
• A smooth, flexible payment process reduces friction and enhances satisfaction.
• Transactions process quickly, with fraud protection and a digital record for better tracking.

Now, let’s explore these benefits in detail and see how credit card payments can impact your dealership’s success.

1. Convenience for buyers

Credit cards make payments easy and fast. Buyers don’t have to worry about getting a cashier's check or carrying large sums of cash. For someone ready to close the deal, offering this payment option can seal it quickly.

2. Increased sales opportunities

Imagine a customer who has rewards or cashback incentives on their credit card. They might be more inclined to use the reward credit card for a significant purchase like a car. It’s no wonder nearly 70% of buyers prefer to use their cards to take advantage of these benefits. By accepting credit cards, you open the door to sales you might have otherwise lost.

3. Improved customer experience

A smooth, flexible payment process can leave a lasting impression. When buying a car, customers already have enough on their minds — from choosing the right vehicle to completing paperwork. The credit card purchase reduces friction in this final step as it provides speed, security, and simplicity.

Imagine a scenario where you only accept cash, and the buyer doesn’t have enough on hand, or their debit card doesn’t have sufficient funds. This slows down the sales process and adds unnecessary stress. Buyers are more likely to recommend your dealership when their experience is hassle-free, and offering credit card payments contributes to that.

4. Speed and security

Credit card payments are processed quickly and often come with robust security measures. This reduces the risk of dealing with bounced checks or counterfeit cash. Accepting credit cards also allows your dealership to maintain a digital trail for every transaction, reducing errors and simplifying record-keeping.

While these advantages make a strong case for accepting credit cards, there’s another side to the story. Next, let’s look at the cons.

What are the cons of accepting credit cards for car purchases?

While accepting credit cards can bring benefits, it’s not without challenges. Here are the key drawbacks dealerships need to consider:

• Credit card transactions come with fees ranging from 1.5% to 3%, which can cut into profits. Fortunately, car dealers can pass these fees to the customers.
• Customers can dispute charges, leading to potential revenue loss and time-consuming resolutions.
• Some customers may have spending caps on their credit cards.
• Credit card payments take 1-2 days to process, which is slower than the cash transactions.

Understanding these challenges can help your dealership make informed decisions about whether accepting credit cards is the right move.

1. Processing fees

Every credit card transaction comes with processing fees, which can range from 1.5% to 3% or more. For a $30,000 car purchase, those fees could quickly add up, eating into your profits.

If your car dealership is in an eligible region for surcharging, Helcim offers a tool that allows you to pass credit card processing fees to your customers. As a result, you can retain more profit for your business.

If high processing fees are a concern, ACH transfers (for U.S. businesses) and EFT payments (for Canadian businesses) can be cost-effective alternatives. At Helcim, these methods come with a much lower fee of just 0.5%, capped at $6 per transaction — a fraction of what credit cards charge. However, the trade-off is speed. ACH and EFT transactions take longer to process compared to credit card payments.

2. Chargeback risks

Customers can dispute charges after the sale, leading to chargebacks. There are many reasons for the chargebacks. The buyer may claim that they did not authorize the purchase, or their credit card information was stolen. Some customers may regret a high-value purchase and file a chargeback to try to reverse the sale. While the fraud protection feature offered by payment processors is helpful, chargebacks can be time-consuming to resolve and might result in lost revenue if the dispute isn’t settled in your favor.

3. Large transaction limits

Sometimes, customers have set limits on how much they can spend in a single credit card transaction. If the vehicle price exceeds that limit, they may need to request an increase from their card issuer or split the payment into multiple transactions. Besides, not every customer’s credit card balance is high enough to cover the cost of the entire car. This might lead to partial payments or the need to combine payment methods, complicating the process.

In reality, many customers won’t make such a large purchase with a credit card. However, if your dealership requires a down payment for an auto loan, offering the option to pay that portion with a credit card can still provide convenience and flexibility.

4. Cash flow delays

Unlike cash transactions, which are instant, credit card payments aren’t instant. Depending on your processor, it can take 1-2 days for the funds to land in your account, which may impact cash flow for daily operations. However, credit card payments are still faster than many other payment methods. For instance, bank transfers can take up to 3 business days, and checks may take as long as 8 days if the bank places a hold on the funds.

Understanding these cons helps you weigh the costs and benefits of offering this payment option. If you’re prepared to navigate these challenges, credit cards can still be a valuable tool. Up next, let’s explore the payment solutions available for car purchases.

What payment solutions can be used to take credit card payments?

If you're considering accepting credit cards at your dealership, choosing the right payment solution is key. Helcim offers several tools that can help make credit card transactions easy and efficient, even for high-value car purchases. Here's how Helcim can help:

Point-of-Sale (POS) System

POS system is designed to handle a variety of transaction types, including high-value purchases like cars. With a simple, intuitive interface, it allows you to process in-person credit card payments securely and efficiently. The system also supports add-ons like financing options, which can be useful when offering cars with varying price points.

Virtual terminal

A virtual terminal is a secure online tool that allows businesses to manually enter credit card information to process payments. It works entirely online, meaning you don’t need a physical card reader or terminal. Businesses can use it from any internet-connected device, including laptops, tablets, or smartphones.

Mobile card reader

If you're at events or selling cars offsite, a mobile card reader enables you to take credit card payments on the go. Paired with your smartphone or tablet, these types of readers ensure that you never miss a sale, no matter where you are.

Payment gateway

For dealerships that offer online sales or take deposits through their website, payment gateways integrate directly into your website. With the ability to process secure online payments, your customers can easily pay for their vehicles or make deposits, making the buying process easier from anywhere.

Recurring billing

Recurring payments allow businesses to automate billing for regular transactions (weekly or monthly payment) , making it easy to set up subscription-based or ongoing services. Customers are billed automatically on a set schedule, with no need to re-enter payment details.

Automatic billing features ensure timely payments and create predictable revenue for your business. For customers, the automated process makes it more convenient. Helcim’s payment solutions are designed to be flexible, secure, and scalable, making them perfect for car dealerships looking to offer credit card payments without the hassle.

What alternatives can be used for accepting credit cards?

While credit cards are a popular payment method, there are alternative solutions that might suit both the dealership and the buyer. Here are a few alternatives to consider:

1. ACH transfers

ACH (Automated Clearing House) transfers are a secure and cost-effective way to process payments directly from a customer’s bank account. ACH transactions generally have lower fees compared to credit cards, making them an attractive option for large purchases like cars. Helcim supports ACH payments, allowing you to offer this option to customers who prefer not to use a credit card but still want to make a quick, secure payment.

2. Financing options

Many car buyers prefer financing their purchases rather than paying upfront. Offering financing options through banks, credit unions, or third-party lenders can provide customers with flexible payment terms.

3. Cash or bank transfers

Some buyers may prefer to pay in cash or through a direct bank transfer to avoid any transaction fees. While these payment methods can simplify the transaction, they also come with risks, such as counterfeit money or potential delays in verifying large bank transfers. If you choose to accept these methods, make sure you have proper verification processes in place.

4. Buy now, pay later (BNPL) solutions

The rise of Buy Now Pay Later (BNPL) services like Afterpay or Klarna offers an alternative for buyers who want to spread out payments over time. These services often have low or no interest for the customer, which can be appealing. While you won’t get the full payment upfront, this can increase the likelihood of closing sales, especially with customers who are budget-conscious.

5. Wire transfers

For high-ticket items, some customers may prefer to use a wire transfer, especially if they are buying a car from another location or country. Wire transfers offer secure, fast transfers, but they often come with higher fees for the customer. Helcim can help streamline these processes if your dealership accepts wire transfers as an option.

Each of these alternatives has its own set of pros and cons. When deciding which payment methods to accept, consider your customers' preferences, your dealership’s needs, and the associated costs. Offering a variety of payment options can help cater to different buyers, making it easier to close sales.

FAQs

Are car dealerships that accept credit cards common?

Yes, many dealerships accept credit cards for car payments, though it’s typically for down payments or partial payments rather than the full amount. Some credit card companies offer high enough limits for large purchases, but keep in mind that many dealerships may impose caps on credit card transactions due to high transaction fees, especially when the purchase price of a new car is involved.

Does a car payment affect credit score?

Yes, a car payment can impact your credit score. If the car is financed, the lender will report the payments to credit bureaus. Timely payments can improve your credit score, while missed payments can hurt it. If you make a credit card payment on the car, it could also reflect in your credit report depending on the card issuer’s reporting practices.

What are the risks of credit card purchase for cars?

The primary risks include high processing fees and chargebacks. Credit card transactions typically come with fees that can range from 1.5% - 3.0% of the total sale, which can eat into profits. Chargebacks are another risk - if a customer disputes a charge, you may lose the payment, along with any related merchandise. It’s important to weigh these risks carefully before deciding to accept credit cards for large purchases.

Is it safe to accept credit card payments for car purchases?

Yes, accepting credit card payments is generally safe, as long as you use secure payment processors. With fraud protection measures and encryption, payment processors like Helcim ensure that credit card transactions are safe. However, it’s important to follow best practices, like verifying the cardholder’s identity and monitoring for fraudulent activity, to minimize risks.

How can car dealers protect themselves from chargebacks on car purchases?

To protect against chargebacks, dealerships can take several precautions:

• Keep detailed records of the transaction, including sales receipts and any customer communications
• Make sure you’re using trusted, secure payment processors that offer fraud prevention tools.
• Set clear expectations with customers about returns, warranties, and payment terms to avoid confusion later.
• If a customer makes a large purchase, verify their identity, especially for remote transactions, to reduce the change of fraud. By following these steps, dealerships can reduce the risk of chargebacks and ensure smoother transactions.