Quick Facts About Buying Your Vehicle Using Cash
- Before buying with cash, decide if the economy and your situation make it a comfortable decision.
- Paying cash for a car means no monthly payment, and you stay within your means.
- Purchasing a car with cash means it’s difficult to return it should something go wrong.
Learn the pros and cons of paying for a car in cash. We break down everything you need to know to make the right decision when buying an automobile with cash. Use the skip-ahead links below to move to the section you need.
- Should I Pay With Cash or Finance a Car?
- Pros of Buying a Car With Cash
- Cons of Buying a Car With Cash
- How to Research What a Car Should Cost
- How to Buy a Car With Cash
- Can You Negotiate if You Buy a Car With Cash?
- Final Tips
Should I Pay With Cash or Finance a Car?
First, you might wonder, should I pay a lump sum or finance my vehicle? Before we get into the question of cash versus financing, a little background is in order for shoppers who have little experience buying a new car.
Here’s the deal when it comes to buying a car. You can either finance the vehicle with a loan and pay it off over time or pay cash upfront. Buying the car with your savings means you’re free and clear of paying monthly loan payments and the associated interest.
One good reason why some people buy cars in cash is that they can afford to, but there can be benefits to financing. Determining which is better boils down to knowing what’s best for your situation and personal finances.
However, do weigh all the parameters of the deal. The reason is that car dealers sometimes offer special cashback bonuses, discounts, or low interest rates for those withgood credit. At times, dealers even offer 0% financing. Consider whether you can get more bang for your buck by investing the money you would put toward a vehicle, especially if your finances look good with ample cash flow.
Suppose you want to buy a 2024 Subaru Impreza with a starting price of $24,115 before taxes and fees, and you can afford to purchase it with cash. If you want to spend about $25,000 of your savings, that’s great. It means no car payment for you. But let’s say you shop around for interest rates and end up with 6% financing for four years on a $20,000 loan after a $5,000 down payment.
In that case, you’ll keep your leftover $20,000 in the bank for a little longer. While you have a car payment, the total interest paid over 48 months comes to $2,546. You must ask yourself — or your financial planner — whether it’s worth $2,546 to keep that $20,000 in your bank account rather than tied up in your car. Most people would rather have the money in the bank or invested, where they can likely earn back the entirety of the loan’s $2,546 interest cost.
RELATED: How Much Car Can I Afford?
What If I’m Purchasing a Used Car With Cash?
As a rule of thumb, buying a used vehicle means you’re saving money out of the gate. The reason is that new cars depreciate when buyers drive them off the lot.
When you buy a used car, paying in cash usually brings more savings on the offer price. That is, except for pickup trucks, which typically retain their value for longer. One of the most significant savings for buying a used vehicle comes if you can leverage your cash for a discount on the purchase price while negotiating, just as you would with a new car.
For a used car buyer, weighing the cost benefits to your bottom line is crucial. For example, would paying for the car outright deplete all your cash? And how long would it take to build up your cash reserves in case of an emergency?
If you prefer to pay cash, research used car prices before purchasing because it will help you negotiate the best deal — and remember to ask for a cash discount price. We’ll get into more on that later.
Another consideration is the monthly payment difference for a new vehicle versus a used one and how that works within your budget. Used cars may need more repairs down the road, especially if there’s no warranty on the vehicle.
But dealerships often provide extra warranties on top of existing ones, especially if you purchase a Certified Pre-Owned vehicle.
However, when you buy used from a dealership, don’t expect 0% financing. It’s more common to see lower interest rate inducements or other deals, such as no payments for a few months. However, temper your expectations if you do not have good credit.
Also, remember you will still pay extra for the used car during the life of the loan.
[Editor’s Note: I have bought and sold over 30 used cars during my driving life, and I used cash every single time. It is the best negotiating tool. When you can flash actual cash, your offer has legitimacy. Cash is the ultimate closer. — Jason Fogelson, managing editor]
How to Pay Cash for a Car
Since hauling large sums of cash to a dealership is risky, the safest way to pay cash for a vehicle at the dealership is to pay using a cashier’s check or arrange for a wire transfer.
MORE: How to Exchange Funds in Private Car Sales
Pros of Buying a Car With Cash
- Discounts. Paying for a car with cash often brings leverage during negotiations.
- No car payment. Paying cash upfront means no monthly car payment expense. That’s a big deal if you suddenly lose your job or another expense needs addressing.
- Spend less money. There’s no monthly payment or interest when you buy a car with cash. You pay for it upfront. That means you spend less money, including on interest payments and any potential loan fees.
- Buy within your means. You live within your means when you purchase with cash, and it’s a smart budgeting decision.
- Power. You get the upper hand in the deal when you pay in cash for a car. It also means you can easily walk away if you do not feel satisfied.
Cons of Buying a Car With Cash
- Financial hardship. You can face a budget crunch and put your finances at risk if you suddenly need money for an emergency and your reserves are gone.
- Few to no discounts.Dealers sometimes offer incentives and discounts to buyers who finance a vehicle. When you pay cash, those disappear.
- Miss out on financing deals. If you qualify for a favorable interest rate, paying cash may not be the smartest thing to do because you’ll lose very little money by financing.
- Return policy woes. Most dealers honor returns for cash buyers, but check your contract because if you pay in cash, you might not have any recourse if you need to return the car.
- Missed opportunity. If you could invest the cash for a greater return instead of buying the automobile, it’s a missed opportunity. For example, you could spend the money instead on a project in your home or an investment.
- Not building credit. When you buy a car outright and pay with cash, you miss the opportunity of building credit, which can help with other loans down the road.
How to Research What a Car Should Cost
Once you weigh the pros and cons of paying for your new or used car with cash, it’s time to research car costs.
Tools to Help You Research Car Costs
When researching the cost of a car, it’s important to know that, like other retail goods and services, prices can get marked up or down. For vehicles, it’s important to know the invoice price range or what the dealer pays for the car from the manufacturer. Then there’s the window sticker price or the manufacturer’s suggested retail price (MSRP).
As a consumer, you will not know the exact invoice price. However, Autotrader offers tools to help you determine the markup price of the vehicle you want to buy.
Start by researching a specific vehicle make and model on Autotrader. On the site, you will find car MSRPs. Then, use the car valuation tool. It helps you know the vehicle’s fair market value once you key in the make and model you’re considering. You’ll find a suggested purchase price based on factors, including the car’s popularity and the spread between the base price and invoice price. Understand that you could pay a little less than the car’s value or a little more, depending on market conditions. Either way, this tool accurately represents where you can expect to be.
Using both tools helps you determine new and used car values and points you to actual vehicles listed for sale.
TIP: Don’t lose sight of your car buying criteria. Keep in mind reviews, lists, and comparisons to refine your search.
Understanding Trim Levels
Trim levels, sometimes called grades, offer different versions of the same model with different features and equipment. For models with several trim choices, automakers usually offer as many as four versions. Sometimes, they offer additional choices.
For example, the 2024 Chevrolet Equinox comes in four versions: LS, LT, RS, and Premier. As trim choices increase, so does the cost of the vehicle.
A great way to learn about trim packages is to read reviews. There, you can compare and contrast and see what others think.
Car Features: What to Consider
When searching for the right vehicle that works with your budget and needs, you’ll also want to consider available car features and whether you want to add those. Those features or options could be anything, such as a head-up display, keyless entry, blind-spot alerts, heated or cooled seats, a premium sound system, and more.
Knowing what to look for in features depends on what you need and what your budget allows.
When looking at added content, try packages that bundle popular options together. Bundling can help save you money.
How to Buy a Car With Cash
Once you’ve selected the car you want to buy, take these steps to complete the deal.
Things to Do
- Negotiate the final price. Don’t settle on paying with cash or even mention it until the final price is negotiated, especially at a dealership. Holding back may net you a better deal at the dealership. From there, use your skills to negotiate an even better deal when you bring cash to the table. See below for more tips on negotiating the price.
- Prepare payment. The safest and most secure option for paying for a car in cash is a cashier’s check drawn from the bank’s funds, not yours. You can also use an escrow service if purchasing a used car from a private owner. Keep all your transactions safe by never giving out banking or personal information. TIP: If your cash transaction exceeds $10,000, budget time to fill out some extra Internal Revenue Service paperwork (Form 8300).
- Don’t forget insurance. Even if you’re paying cash, you still need car insurance. Be prepared ahead of time and pick out your insurance before driving.
- Pay for and pick up the new car. Don’t drive away without a bill of sale, the latest emissions certificate, and the car’s title. Dealers will handle all this for you. With private sellers, it’s your responsibility to get the paperwork done.
- Final paperwork. At a dealer, registration, tags, and taxes get handled before completion. However, if you purchase from a private seller, you must still register your vehicle, pay taxes, and get your tags. Check your state’s motor vehicle agency to determine what you need to register the car.
MORE: Legalities When Buying a Used Car From a Private Seller
Things to Avoid
Check out these things to avoid when researching vehicles.
- Focusing just on price. When factoring in the cost of the car, look at more than the bottom line number. After you weigh the differences between cash and financing, consider that no matter how you pay for your car, there are always gas, maintenance, repair costs, and car insurance to consider. Use this quick tool to figure out Geico car insurance costs. Then, compare with other insurers before making a final decision.
- Scams. Watch out for selling scams. Look out for deals that seem too good to be true. If you’re not comfortable, walk away. Check out online reviews of small dealerships before shelling out money for a deposit, let alone a car.
- Fraudulent sellers. If a seller doesn’t own the title, find out why and be willing to walk away from the deal. Use these tips to spot fraud and get a vehicle history report from a reputable source like AutoCheck or Carfax before buying a car.
- Not researching the value of your current car. If part of your deal involves trading in your car, get the estimated value of your existing vehicle before you walk into any dealership. That knowledge helps you know what the dealership likely will pay you for your trade-in. It also allows you to more accurately budget for a new or used car.
- Not getting a used car checked by a mechanic. For a used car deal with a private seller, be sure to get the car checked out by a mechanic. If a seller offers a mechanic’s report, do your due diligence by checking out reviews of the shop. You can also double down and get your own assessment.
- Car dealers with no solid reputation. Stick with reputable dealers who treat customers fairly and equitably. You can also check dealer ratings on Autotrader and read other online dealer reviews.
Can You Negotiate if You Buy a Car With Cash?
You can negotiate whether you’re buying a vehicle with cash or financing. In many cases, haggling for a lower cash price for a used car is more effective than negotiating with cash for a new vehicle. While there may be more wiggle room between how much the dealer paid for a new car from the factory and the MSRP, dealerships often make more money on financing deals than profiting from the selling price.
Tips for Negotiating the Price
Use these tips when settling on a price for your vehicle.
- Compare other models. When settling on the price, compare other models. Exploring other options, including older models, helps you stay on budget while getting the extras you want.
- Avoid buying extras. Extended warranties, window etching of a VIN number theft protection, key fob protection, tire nitrogen costs, paint and fabric protection, and windshield, tire, and dent protection are just some of the add-ons dealers will try to upsell during the sales process. You often don’t need these protections, so weigh them carefully. Before making any decision, ask your car insurance provider what add-ons cost, like windshield protection. For example, a windshield protection add-on can cost less than $10 extra per year and often comes with a lower deductible.
- Ask for the price upfront. Yes, dealers use this tactic to lure buyers into the showroom. Also, it’s a safety net for you to see the price first. However, it gives you a starting point to negotiate a car if you pay with cash. If the vehicle will be financed, never give out the car payment range you would prefer. Seeing the price first allows you to keep the upper hand during the deal while buying within your budget.
- Consider no-haggle pricing. Many shoppers wonder if no-haggle pricing truly comes without the haggling. In a word, yes. But it’s a fixed price. It makes the process easier, but it’s probably not the best price a dealer offers.
RELATED: How to Buy a Used Car from a Private Seller
Final Tips
It’s a great feeling when you finally put your foot on the gas and purchase the vehicle. A word of caution, however. Buying a car isn’t like purchasing a refrigerator. It’s more difficult to return a vehicle if something goes wrong. When paying in cash, it’s also more difficult to return a car to a private seller.
That’s why doing research and taking your time helps prevent these situations. Still, things can happen, or the car could be a lemon. Read on to know what you can do.
Steps to Take to Return a Vehicle
- Start with the dealer. Reputable dealers generally prefer to make good on a sale rather than read bad reviews on social media.
- Consumer affairs. Your state’s consumer affairs division can be another great place to start if you aren’t satisfied with the dealership.
- Lemon laws. Laws exist in every state in the nation. Some states offer protection to consumers with used car lemon laws. Know what your state’s Lemon Law says even before buying the car. Read more about returning a vehicle.
Read Related Articles:
- Used Car Buying Guide
- Can You Buy a Car With a Credit Card in 2024?
- 3 Car Financing Options for College Grads
Editor’s Note: This article has been updated since its initial publication.
