Car loans are high-priority bills, and falling behind on payments can have serious consequences. A missed payment can trigger late fees, hurt your credit score, and even put you at risk of vehicle repossession. That’s why it’s crucial to know exactly how you’re going to make your car payment on time every month.
If you’re like many Americans and use a prepaid debit card to store your cash digitally, rather than using a traditional bank account, you may run into a roadblock when attempting to use your prepaid car to pay your car loan. In fact, most lenders won’t accept a car loan payment from a prepaid card at all, at least not directly. Therefore, it's important to figure out another way to get the funds from your prepaid card to your lender before the payment due date.
Luckily, there are multiple workarounds that allow you to use the funds from your prepaid card to pay your auto loan. Whether you need to cover your current car payment right away or you want to set up a reliable system for future payments (or both), there are several strategies available to help you keep your car payments on track, avoid late fees, protect your credit score, and reduce your financial stress.
Why most auto lenders don't accept prepaid cards
Many auto lenders won’t take prepaid cards for the same reasons they won’t accept credit cards as payment:[1] because they want to avoid merchant fees, and because their risk management policies favor forms of payment that are associated with traditional bank accounts.
Merchant fees
Merchant fees, also called interchange fees or swipe fees, are processing costs charged by card networks (like Visa, Mastercard, Discover, and American Express) any time a card is used to make a payment.[2] Whether the card is a credit card, debit card, or prepaid card, the money transfer is processed through the card network, and the party receiving the money is charged a merchant fee.
These fees are complicated, varying by network, payment type, and even business type. For example, Visa’s 2024 fee schedule is 25 pages long.[3] In many cases, the merchant fee equals 2-3% of the transaction amount. So, on a $500 car payment, for example, a 2.5% merchant fee would cost your lender $12.50.
Lenders are typically not willing to reduce their margins to cover this cost. Some lenders might accept card payments, but they may add on a 2-3% surcharge to cover the processing fees. Other lenders don’t even want to make card payments available.
Risk
Unlike traditional debit cards, which are directly tied to a bank account, credit cards and prepaid cards are not linked to a bank account. Credit cards allow buyers to purchase first and pay the balance later with interest, while prepaid cards use funds that have been loaded directly to the card.
Lenders typically prefer payment from traditional bank accounts (via ACH transfers, checks, or direct bank payments) rather than credit cards or prepaid cards because it is a more reliable source of funds.[1] Credit cards could max out, preventing the auto loan payment from processing. Even if the payment goes through, the borrower now has more debt, potentially with a higher interest rate than the auto loan, which could create long-term financial struggles. With prepaid cards, there’s a risk that the funds could be depleted before the payment is processed, preventing the lender from collecting the payment.
Workarounds for paying your auto loan with your prepaid card
Even if your car loan lender doesn’t accept prepaid cards as payment, there are multiple ways you may be able to use the money on your prepaid card for your auto loan.
Option 1: Pay by phone
Some lenders accept debit card and/or prepaid card payments over the phone. You can try calling your auto loan lender’s customer service department and ask if you can pay by card. Make sure to inquire about any additional fees that might be charged for the convenience of paying by card.
While not all lenders offer this option, and those who do may charge a fee, this is typically the fastest, most convenient option if it's available.
Option 2: Buy a money order
All lenders will accept a money order as payment. Money orders are paper payments guaranteed by the issuer. You just need to use your prepaid card to purchase the money order, then mail or deliver it to your lender.
Money orders can be purchased at banks, post offices, and Western Union locations, as well as at many retailers (like Walmart, 7-Eleven, and CVS). However, you may need a prepaid card that allows you to enter a PIN into a card reader for this type of transaction (like the Netspend Prepaid Card).* And you will be charged a fee, but the fees are usually reasonable. For example, the U.S. Postal Service currently charges $2.55 for money orders up to $500 and $3.60 for money orders between $500.01 and $1,000.[4]
Once you have the money order in hand, you can physically take it to your lender, overnight it, or send it in the mail, depending on how quickly you need to submit payment. If you’re going to send it in the mail, make sure to choose a delivery option with tracking.
Option 3: Use your prepaid card's bill pay feature
Some prepaid cards, like those issued by Netspend*, offer a “bill pay” feature that allows you to schedule payments and have the card issuer mail a check to your lender. These checks are processed by your auto loan lender in the same way that a personal check from a bank is processed, so it is universally accepted.
It’s important to note that bill pay isn’t provided by all prepaid card issuers, so you need to make sure your prepaid card offers this service and see if there is a fee associated with it. Also, it can take several business days for the check to be issued and work its way to your lender through the mail. So if your payment is due within a few days, you may need to choose another payment option. Then, you can arrange for future payments to be paid through bill pay, so you don’t have to stress about how to make the car payment every month.
Option 4: Use third-party bill pay services
Some financial service companies, such as Western Union, MoneyGram, and CheckFreePay, offer bill pay services, accepting money from you online or in person, then forwarding those funds to your car loan lender.
Fees vary by service, location, and amount. Depending on how funds are transferred from the third-party bill pay service to the recipient, it may take several business days for the transaction to be completed.[5]
Choosing the right workaround for your situation
When choosing a workaround to pay your car loan with a prepaid card, consider the following factors.
- Your lender’s policies. When in doubt, contact your lender to make sure you understand which forms of payment they accept.
- Timing. If you’re up against a due date and need the payment to process quickly, pay-by-phone is your best bet, followed by money orders (particularly if you can purchase the money order in person, then drive it directly to your lender that same day or overnight it for next-day delivery). For recurring payments, like your car payment, taking a few minutes to set up bill pay now can help you avoid late payments and prevent stress in the future.
- Cost. Determining the cost of making a prepaid debit card car payment can be tricky because each service provider has their own fee structure. However, if you have the time to shop around for rates, it could save you money on making this car payment and future payments.
Final thoughts on paying a car loan with a prepaid card
While it may require a workaround, understanding how to pay your car loan with a prepaid debit card can help you keep your auto loan payments on track without the need for a traditional bank account.
If you need to make your current car payment right away, try paying by phone or buying a money order with your prepaid card. If you have a little time or you’re planning ahead to make future car payments, consider getting a prepaid card that offers bill pay services. For example, you can set up future bill-pay car payments with a Netspend card today*, and your car payment can be sent stress-free to your lender every month.
Other resources:
1. https://www.experian.com/blogs/ask-experian/can-you-make-car-payment-with-credit-card/
3. https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf