Savvy shoppers may get car with card

A few weeks ago, I responded to a reader's question about the possibility of putting the purchase of a new car on a credit card.

Based on my personal experience -- and that of several friends who tried to do this -- I replied that most dealerships won't allow the full purchase price of a car to be put on a credit card.

Some will allow part of the purchase price -- sometimes as much as $5,000 -- to be put on a card. But they balk at putting the full price of a car on a credit card because the dealership must pay the credit card company a fee that ranges from 2 percent to 3 percent of the purchase price.

With profit margins thin on many new car sales, dealers aren't eager to give away another $600 to $900 on a sale of a $30,000 vehicle.

After my response was posted, I received this e-mail from Matt Fadiman, vice president at Riverbank in North Andover, Mass.

"I have worked in banking and merchant card services for 15 years, and unfortunately (Jackson's) response was not accurate. He was correct that the dealer would pay an approximate 2 percent fee on the transaction. However, as per both the MasterCard and Visa merchant agreements, a participating merchant must accept that credit card (assuming it is valid and approved) for all purchases. The merchant cannot, by policy or practice, decide which transactions it will allow and which it will not.

"I do agree that in reality many dealerships will attempt to refuse to charge the sale on a credit card, but when pushed they will back down. I have purchased my last 4 cars all on credit cards. To say the least the dealer was not happy, but when presented with both a copy of the merchant agreement, and my declaration to pursue with the credit card company, they quickly reversed their position. My calculation is that between the rewards (cash back) and the zero percent rates on the credit cards, my savings were well in excess of $6,000."

I spoke with representatives from Visa, MasterCard and American Express, and while Mr. Fadiman is correct on some points, the reality most buyers face is not so clear-cut.

A spokesman for Visa e-mailed me this response, which mirrors MasterCard's position:

"U.S. merchants must follow basic card acceptance rules for all Visa transactions. Visa's rules do not allow merchants to impose a maximum transaction amount as a condition for honoring a Visa card. Our rules require merchants to always honor valid Visa cards regardless of purchase amount -- large or small."

But at American Express, the situation is different.

Spokeswoman Sarah Meron says that car dealers can refuse to put the full purchase price of a vehicle on an AMEX card.

"We would love everyone to put everything on his American Express card, but dealers have the leeway to limit transactions," she says.

There's another reality that makes this a very gray area.

Car purchases are negotiated deals involving many factors, including the purchase price of the vehicle, the value of a trade-in and the method the buyer is using to pay for the car.

A dealer can adjust the deal using any or all of those factors. A deal is not a deal until there's a signed contract, and all car sales contracts include a section on how the buyer plans to pay for the vehicle.

So, if a buyer tells a dealer he or she plans to finance the car through the dealer and then shifts gears and decides to pay cash at the last moment, the dealer can and likely will renegotiate the whole deal. After all, the dealer probably was counting on getting a fee from the bank or finance company.

So, it's not beyond the realm of possibility that when someone negotiates a price on a new car and then asks to put the amount on a credit card -- to take advantage of a zero-percent finance rate or reap frequent flier miles -- the dealer will refuse to go through with the deal or renegotiate the price to cover the cost of the credit card fee.

Doing that may be in violation of the dealer's agreement with the credit card company, and if you're savvy enough to threaten trouble with the credit card company, a buyer may be able to push through a deal. Or, maybe the deal is so lucrative already for the dealer that the store is willing to give back the cost of the credit card transaction.

Regardless, my bet is that the dealer's position will almost always prevail.