Paying cash for a car - or maybe I shouldn't


#1

I need a new vehicle and I’ve been setting aside money for years and for the first time in my life can actually afford to pay for it in cash. That being said… What is the best strategy for dealing with car salesmen when it comes to financing? (I hate hate hate dealing with car salesmen. I’d rather get a prostate exam from Freddy Kruger.) Do I just state upfront that I’m paying cash and go from there? Or should I be coy and say something like “We’re considering different financing options, let’s worry about the new car price/trade in value on old one right now?” I know that car dealers make a ton of money off financing so that’s what they’re going to push. If a car dealer offers a lower price (because they think they’ll make up for the price difference with interest charges), do they let you finance it and then pay the whole thing off the following month?

Any advice? Or is this one of those “Well, it depends…” kind of questions? Thanks in advance.


#2

Yes, the salesmen prefer to deal with customers who are financing

And they will probably try to tempt you with all sorts of great deals, if you’ll finance through the dealer

That said, if you really hate dealing with their games, by all means, pay cash

Correct me if I’m wrong . . . I get the impression you want the buying experience to be relatively pain-free and not disgusting. That seems to be your priority, versus spending hours and hours haggling over the lowest price, driving around all over town, making hundreds of phone calls, nailing down that rock bottom lowest price . . . ?

If I’m at all correct, pay cash.

And . . . as some of our regulars say . . . don’t EVER tell anybody what you paid for the car. It’s none of their business, and it’ll just open up a can of worms

One more thing . . . if you pay cash, it won’t “clean out” your savings, so to speak, will it . . . ?


#3

Actually it is possible to make a deal for a vehicle over the web now. You can have a set price and all you have to do is test drive and decide how to pay for it. With all the zero percent loans now that is worth thinking about. The only problem is they are not long term and the monthly payments are high and that bothers some people.


#4

It really does depend.

If you can invest the money at a higher interest rate than your loan’s interest rate, it makes sense to take out the loan and then put the money into the investment.

If you absolutely want to pay cash but want to get a better deal on the car it often makes sense to finance the car, provided there’s no early payoff penalty, then pay the loan off a month after you buy it. You’ve essentially paid cash, but you got a better price on the car.

If you can absolutely afford to pay cash for the full price of the car and you don’t want to hassle with any of that obnoxiousness, by all means pay cash.


#5

While paying cash will help some, there’s plenty of potential obnoxious stuff to deal with even then. There’s the price negotiation (I research a reasonable, not rock bottom price, make an offer, and state I’m leaving in X minutes - makes the negotiation go quick). Then there’s all the expensive add ons they try to sell you at the closing - say no to everything offered, it’s either overpriced or worthless.


#6

My experience is to not discuss how I will be paying until after I get the sighed price.
Last time I had the cash, but the dealership had a bonus $500 cash back with my credit union. So I financed it, got my $500, then paid it off the following month.


#7

Use one of the internet car buying sites to research prices and incentives. Those sites have links that let you search inventory of new cars at dealers near you, and you can make an offer online. There’s a person at the dealership who does nothing but close deals on internet buyers. The last car I bought new the whole deal was done with texting before I got to the dealer. I had found Honda had a .9% financing offer and the paperwork I was given showed 1.9%, so I showed the guy a printout of the .9% deal I found. He “checked with the manager” and redid the paperwork to show the .9% deal. The car I was buying also had a $999 dealer add-on package of stuff that I did not want, already on the car, so I told them to either take it off asap or just leave it there but I wasn’t paying anything extra. After 5 minutes of moaning and groaning they forgot about it.

So, yes, you can avoid a lot of crap this way, but not all of it. You do have to read everything they want you to sign. I told the guy to go do something else for 15 minutes so I could go over the paperwork in peace, and he did.


#8

we went a long time with never having gotten a new car. it felt odd to be in a new car vs used. it was tempered of course since it was a lease and i knew it was only for a short while. no squeaks, a warranty, driving fast with little fear of parts falling off or something breaking was nice. but thats just me


#9

One more thing - keep the trade-in separate from the new car purchase. Get offers from used car dealers (CarMax gives it to you in writing). Dealers will try and confuse the deal by manipulating the trade-in’s value.


#10

No, it won’t clean out my savings. What I usually do after paying off a car is to just spend the money on something else. This time, I kept on making a car payment but just put the money into a special savings account that I never touched. The idea was that I’d have a decent down payment, but my current car lasted so long, there’s enough in there now to pay cash outright.


#11

If only the other 90% of folks had your discipline. That’s a perfect way to maintain control over your debt and car expenses.


#12

Last time I bought a car (about 2 and half years ago). I had every intention of paying in cash. I did not mention this to the salesman until the price of the and trade in value had been determined. To my salesman’s credit, he didn’t bring it up either until it needed to be discussed, and when I did mention I was paying in cash, he didn’t even attempt to change my mind. I’m currently looking at used trucks, my old 97 F-150 has been nickel and diming me lately, and it’s rust problem is becoming something I really can’t ignore for much longer. I’m checking out a 2014 F-150 Ecoboost at local dealership that checks all the boxes on Saturday. Again it’s going to be be cash deal (no matter what I end up getting), and again I’m not going to bring it up until the the numbers are finalized.


#13

This is possible- if the loan you get doesn’t have an early payoff penalty- so make sure you understand the loan you are signing if you go that route. Some shady groups don’t want you to pay off a loan early, because they lose money on the interest you won’t be paying anymore- so they add in a penalty, which could prove costly.


#14

And don’t trust the closing guy regarding the payoff terms, read it for yourself.


#15

I agree with @texases. If you have a car to get rid of, get an estimate from a car dealer to sell them the car. Apparently used cars are in demand now, and you might get a good offer. I’ve sold to CarMax in the past and got more than I thought I might. Their offer is good for something like two weeks, assuming you don’t put a lot of miles on it after the offer. You can then buy your new car in the meantime. After negotiating a price for the car, then tell them you want a price on your trade. Sell it to the highest bidder. After all this, ask about financing. If you want to build a credit rating, an auto loan is a good way to do it. If you already have a good credit rating, cash makes sense. I’ve paid cash for the last 30 years. I never overspend that way and don’t pay interest on an asset that loses value.


#16

I didn’t read the other responses so maybe there is some gold nuggets there, but just get your financing ahead of time from your credit union or bank, or at least know their terms. Then if the manufacturer (not dealer’s bank) has a better deal you can go for that. People think it’s smart to pay cash, and I don’t fault people if it makes them feel better, but a 2 or 3% loan interest rate compared to a 10-15% stock growth rate on your money seems to me to be a pretty clear choice. Unless your cash is in the glove box or something which is where I keep my cash cash.


#17

My own experience: I could pay cash, but financed my new Altima as financing via Nissan own loan would make their price $750 off my cash price, plus it was a small 1.5%.
Loan had a condition that they woudl take $750 back if I paid loan off in less than 12 months, so I let it linger for 13 payments, then paid it off.


#18

You can sometimes finance and get a rebate, then pay off the vehicle with cash. I did this with a 2013 F150. I took the Ford financing in order to get the $1500 rebate. Then paid it off on the first payment.

I will say, from my experience, they don’t deal better for cash. Maybe worse.

As far as money earned in investments elsewhere, I grasp the concept. But say you’re getting a higher interest rate on your 401k vs the interest you’re paying on the loan… Can you really get that money? What % will you get if you cash out with taxes applied, interest on the car, depreciation on the car, etc? I don’t personally count 401k rate of returns “real”, since I couldn’t actually cash it out today and get that particular rate of return after taxes. It still might be better to finance vs paying cash. But if your 401k (in my case) says X% vs Y% for the car loan, I don’t think they’ll compare straight across the board when you figure in taxes and depreciation. If you wait until retirement, you get Z% on the 401k. So who knows how they compare.


#19

If your money is in a 401K and you can’t get at it, you can’t use it for a car anyway. If you have $30,000 though socked away for a car that you would have access to (you’ve already likely paid the tax on it so it is sitting there in some type of account). If you have it invested, it will likely return anywhere from $2000 to $4000 a year if you leave it invested. Versus paying $600 interest on a car loan. So you take the loan and pay the $600 interest a year and leave the money earning 7-15%. Depreciation has nothing to do with anything and if tax hasn’t been paid on the money yet, that’s all the more reason to leave it alone is all I’m saying. Not encouraging debt but just sayin’ why shoot yourself in the foot? Of course you could lose, but we’re talking over the long term.


#20

I paid cash for my last 2 cars (new) and with the most recent, the salesman did not know how to do a cash transaction, and told me he had to “ask my boss” on whether it was “OK”. He had never heard of a certified check from a bank and kept talking about their “zero interest” financing.

Be prepared fore blank stares when you bring it up!