Buying a car up front with one lump sum payment – known as buying a car with cash, even though a cashier’s check is usually used rather than a briefcase full of greenbacks – enables bypassing a loan. This eliminates the interest payments that add to the car’s final cost to you. Cash purchase of a new car has both advantages and disadvantages, in addition to some specific negotiating methods. Buying a used car, on the hand, is frequently a cash-only transaction – especially if you’re purchasing from an individual.
One of the benefits to buying a car with cash is that the large up-front payment encourages you to buy “only as much car as you need.” If you’re spreading out the payments over years and thinking only in monthly terms, you may be tempted to add a lot of fancy options you’ll never use much – upgraded entertainment electronics, unusual paint colors, attractive but unnecessary luxury items like leather-wrapped steering wheels, prestigious trim levels with elaborate badges and chrome work, etc.
Paying up front with cash prompts you to discipline yourself to buy a good, reliable, but thrifty car that meets your needs without a lot of bells and whistles you’ll scarcely ever use. Declining financing may also trigger a rebate that isn’t otherwise available.
On the downside, the immediate cash layout may prevent any other major purchases leading up to acquiring your new car and possibly for a few months afterward. Financing, while it adds many thousands of dollars in interest to the total cost of the car, may leave you with more disposable income in the meantime – something you should consider if you enjoy spending regularly on other items or services.
Preparing for a New Car Cash Purchase
Unless you’re independently wealthy or in an extremely rarefied income bracket, you’ll need to save up for months prior to buying your new car outright. During that interval, put regular “car payments” into a savings account to build up the necessary sum.
Both CUNA credit unions and FDIC banks offer savings accounts that pay interest. While the interest on even the best savings account isn’t high enough to truly multiply the money, even a small amount of extra cash helps. If you plan to sell your current car simultaneously with purchasing the new one, this can also boost your cash on hand.
Use the time spent accumulating the money productively by researching the vehicle you want and finding the best possible deal on it. This is a period when you can take several vehicles out for test drives in order to find which one corresponds most closely to what you need in a car.
Negotiating a Cash Car Purchase
If you’re buying certain types of used cars, a cash purchase is not only accepted but expected and even necessary. For new cars, however, you need more caution. The sales personnel shouldn’t know that you intend to buy the vehicle outright until immediately before the purchase. Since financing adds to the dealership’s profits and the salespeople’s commissions, they will go all-out to change your mind if you let slip that you’re planning on an upfront purchase too early.
Be sure to get a total price, rather than a price per month like sales personnel often focus on. Check the price carefully for excess fees or useless services (such as a paint protection plan). Use other standard negotiating methods to get a good price, including calculating an offer using the dealer invoice price, getting competitors to actually compete against each other with offers and counteroffers, and so on.
If questioned about financing before you’ve reached a deal with one of the showrooms, tell the salespeople that you will decide once you’ve picked your car. Once you’ve pinned down a decent vehicle at a good price, reveal your intention to buy cash and ask for the cash rebate that often accompanies such purchases.
In most cases, you shouldn’t hand over any money until a sale document satisfactory to you has been inked. Handing over part of the cash early does not strengthen your negotiating position; being able to walk out (or prepare to walk out) without losing anything increases the power of your bargaining, if used sparingly and wisely.
One final upside to your new car cash purchase is that the car is now entirely yours. If you have any spare cash in the following months and years, you needn’t expend it on car payments. Instead, you can roll it back into maintenance, boosting your car’s resale value when you eventually decide to replace it.