Everything You Need to Know

Financing a vehicle with a car loan is a common option for car buyers. But if you want to avoid debt, or you’ve been saving up for a new car, you might decide to pay in cash.

Before you buy a car with cash, there are a few things you should know. Even if you have the money available, buying a car in cash is not the best option. Here are some things to keep in mind if you’re thinking about buying a new or used car for cash.

Not ready to buy a car with cash? Compare car loan options easily below.

What Does Buying a Car with Cash Mean?

If you’re shopping for a vehicle, you’ve probably heard the term “paying cash”. But what does that really mean?

Paying “cash” for a car doesn’t necessarily mean you’re using actual dollar bills. Instead, it means you pay the full cost of the vehicle up front. After you pay the dealer, you can leave with the keys as the rightful owner of the car.

Although most car dealers will let you buy a car in cash, you usually have several other payment options. You can expect almost all car dealerships to accept a cashier’s check drawn from your bank, a personal check or a wire transfer from your bank account.

Advantages of Paying Cash for a Car

There are many benefits to paying cash for a new car. Some of these advantages include:

• Spend less money: When you buy a car with cash, you avoid paying interest on the loan and other lender fees.
• Need to make wise decisions: If you’re paying cash for a car, you may be on a tight budget. You will not be tempted to buy a car that is more expensive than you can afford.
• No monthly fees: You won’t have monthly payments when you buy a car in cash, as you would with a car loan or lease.
• Get a discount: Some car dealers will give you a discount when you pay for the vehicle in cash. However, this varies from lender to lender.

Disadvantages of Paying Cash for a Car

While there are many good reasons to pay cash for a new vehicle, there are also some downsides. Here are some disadvantages of buying a car in cash:

• Fewer vehicle options: When you buy a vehicle outright, you may be shopping on a tight budget. While that has its advantages, it also means you’ll be limited in the types of vehicles you can buy.
• Decreasing cash reserves: Buying a car with cash is often a big expense. When you’re paying for a car up front, you may be draining your savings significantly.
• No dealer incentives: It is common for car dealerships to offer incentives when you finance a vehicle with one of their loans. If you pay in cash, you will not be able to take advantage of this offer.
• No chance to build credit: Getting a car loan means you’re going into debt, but it can be beneficial for your credit score. Making loan payments on time can improve your credit, which you can’t do if you buy a car with cash.

How to Buy a Car With Cash

general car buying process quite complex. It involves budgeting, car shopping, negotiating, getting financing, and sometimes, a trip to your local DMV. Buying a car for cash is the same process, until the sales transaction takes place.

Here’s a quick overview of how to buy a car with cash:

Budget and Save Money

If you want to buy a car with cash, the first thing you need to do is start saving money. While this may seem obvious, you need to save a significant amount of money to buy a vehicle outright. You will be responsible for the full cost, not just a partial down payment, plus some additional fees.

Think about the type of vehicle you are interested in and how much money you need to save to buy it. Then, create a savings schedule for yourself. Decide whether you will save weekly, bi-monthly or monthly. You can do some simple math to see how long it will take you to save the amount you need.

Find a Car You Like

The next step is to buy a car online or go to a dealership and find the model you like. Make sure you shop with your budget in mind. You can also ask the salesperson to only show you vehicles that fit your price range to avoid being tempted by higher end models.

Negotiate Final Price

Once you’ve found a car you like, it’s time to negotiate a price with the seller. Knowing how to negotiate is essential to getting a good deal on a car. However, you don’t need to be an expert consultant. Just make sure you back up your offer with compelling facts.

For example, if you want to offer $5,000 less than the vehicle’s MSRP, provide information showing that the vehicle’s fair market value is slightly less than what the seller is charging. If there is anything mechanically wrong with the car, you can also include an estimated repair cost into your offer.

Prepare Your Payment

If you decide to buy a car with cash, there are a few different ways you can pay. One option is to use physical cash, but that’s not the only way. You can also get a cashier’s check from your bank, write a personal check or initiate a wire transfer from your bank to a merchant or seller’s account.

Whatever option you choose, make sure you know the final amount of the transaction. A vehicle usually costs more than just the MSRP. Even if you pay in cash, you will have to pay other fees, such as dealer fees and sales tax.

Buy a Vehicle

The final step is to buy the vehicle, submit the payment, and get the keys. One last thing to remember is that you must have car insurance to legally drive the car.

Some car insurance companies automatically cover a new vehicle for a short period of time before it must be officially added to the policy. However, if your policy does not allow this, or if you do not already have car insurance, you must purchase coverage and insure the vehicle before you can drive home.

Should You Buy A Car With Cash?

Buying a car in cash can be a good financial move. It helps you avoid unnecessary debt, and you don’t have to worry about making monthly loan payments. It also forces you to buy a car you can afford. When you take out a loan, it’s easy to be tempted by a more expensive vehicle because the cost is broken down into smaller installments.

Despite the advantages of buying a car with cash, it is not the best option for everyone. Not only does it require a large amount of savings, but it can drain your account quickly. You may also miss out on financing offers, such as 0 percent financing for 36 months, which can make the cost of borrowing money relatively cheap.

Before buying a car for cash, take some time to review the pros and cons, and consider the best option for your financial situation.



Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. He has extensive knowledge of various lines of insurance, including auto insurance and property insurance. His byline has appeared in dozens of online financial publications, such as The Balance, Investopedia, Reviews.com, Forbes and Bankrate.