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How to Buy A Car With Cash: Say Goodbye to Car Payments!

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Want to know how to buy a car with cash? Here are the steps my family took to pay cash for a car at a dealership to save money and avoid a car payment.

Our society doesn’t encourage people to buy a car with cash. We love our car payments and it shows. The average car payment is over $500 and it’s not unheard of to see car loans extending into the 6-7 year range, if not longer. Yes, you might get a “nicer” car by financing it until you have grandkids, but paying cash for a car gives you more control and, in the long run, helps you save money.

We recently bought a new-to-us car with cash, as it’s important to us to avoid car payments. That’s right, no financing at all. It was an interesting experience and if you want to know how to buy a car with cash, this post is for you.

Why We Chose to Pay Cash for A Car

 

I’ll say it – we hate car payments. They absolutely suck! Many people have car payments, but we downright hate them. Not only is a car merely a tool that takes you from point A to point B, it is a depreciating asset.

In short, financing a car is a losing sum game. Thanks to depreciation, you end up paying far more than the car is worth, making it that much more difficult to grow your wealth.

We’ve not always thought that it was bad to have a car payment. We’ve taken out loans on past cars we purchased. In fact, the last time we bought a car, we took just under three years to pay off a five-year loan. That is the last car loan we ever plan to have.

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We bought a new to us car (a 2015 Ford Expedition EL) several months ago with cash. It was one of the best feelings I’ve had in recent memory. A car payment is usually met with dread over how you can afford it or just how long it will take to pay off.

I hate that feeling and it was great walking out with the keys knowing it was ours and that we weren’t about to lose money thanks to interest. Paying cash for cars isn’t the norm in our society, but if avoiding debt and controlling my money isn’t normal then I’ll gladly wear the freak label!

buy a car with cash

I spent considerable time researching how to buy a car with cash at a dealership and found little in terms of practical tips to accomplish my goal. Thankfully, I found that it’s not that difficult to determine how to pay cash for a car.

How to Buy A Car with Cash

 

Buying a car with cash isn’t difficult, per se, but it does require following a few steps. Below are the steps to take if you want to buy a car with cash at a dealership.

Start saving your money. This is the obvious first step. Whether you’re buying a $5,000 or $75,000 car, you need to save your money. We did this in one key way. We set a monthly amount – $300 per month that we put into a high yield savings account.

I recommend CIT Bank as they pay 1.85 percent on your cash in their money market account. Don’t invest the money, as you don’t want to risk losing it, so finding the best paying savings account option is best.

You may need to trim some living expenses to create enough of a monthly savings. Here’s a list of 35+ ways to save money every month that will help you find opportunities to save.

As you research the car you want to buy, this will help you set a goal of what you need to save. Just remember not to forget what you will need for taxes, titling and other related fees. You may also want to track your saving and spending to find opportunities to save more.

We recommend Tiller if you’re looking for a way to track your spending. Tiller lets you view all your financial transactions in one location. Tiller is a Google Sheets based service that automatically pulls all your banking and other financial transactions that helps you categorize your spending and find opportunities to save.

Tiller is free to use for the first month, then $5 per month thereafter.

Research cars. This is another obvious, but important step to help you find the best car to buy. Again, this will help you determine how much you need to save but it will also help you narrow down exactly what you need in a car.

I found that Consumer Reports, Edmunds and U.S. News & World Report gave the best, most thorough and unbiased reviews. Find a few resources you like and narrow down your list to several cars to compare.

At the Dealership. You have your money saved and list of cars to consider. Now it’s time to start shopping for a car. You may want to tell them that you plan on paying cash for a car – Don’t! You want to hold this information close to the vest as it gives you control.

As you look at cars and get a little more serious, most salespeople will ask if you have financing lined up. Feel free to be vague with this conversation. What I found worked best was saying something like this – “We have financing lined up, but will be happy to listen to offers if we buy the car.”

This does two things. It helps you keep the purchase decision of the car separate from how you will pay for it. It also gives you power. Information is power and the less information you give the salesperson, the more power you keep.

When you select the car you want to buy and you get in front of their finance department, tell them you have changed your mind and that you will be buying the car with cash.

Any reputable dealer will allow you to proceed. If they don’t, you must decide if you’re willing to walk away from the car.

One other thing to keep in mind – the dealer should not ask to run your credit report if you’re buying the car with cash or have your own financing. The dealer may say they need to do it to be compliant with the Patriot Act.

That is not the case, they often do it to simply try and use it to market their financing to you. If your paying with more than $10,000 in cash they do need to have you fill out paper work for the government to make sure you clear the terrorist watchlist, but that does not include running a credit report.

Set the price first. This is a repeat of the above step. Again, the salesperson will try to pry you for all the information they can get. Make them work for it and only tell them what they need to know.

When you know which car you want to buy, begin the negotiation process. Again, don’t discuss financing options. Stick to solely discussing the price as financing should have nothing to do with the price you agree to for the car.

The dealership makes money when you finance through them, so they have a vested interest in getting you to finance with them. In a courteous but confident manner, tell them you will discuss financing options with the appropriate department once you have agreed on a price for the car.

Once you agree on a price, ask the salesperson to classify it as a pending sale. That allows you to take it to your mechanic (see below) and basically make it yours – just expect to make a small, earnest down payment.

Don’t forget to negotiate on price either! It is one of the best ways to save money when buying a car. With some simple negotiation we were able to knock more than $3,000 off the price of our car and land on the low end of the Kelley Blue Book value, so we were happy.

Take the car to the mechanic. This is key, assuming you’re buying a used car. Don’t just trust their service department. You want an independent mechanic to look at the car and verify that it has no problems.

Any good dealership will have no problem allowing you to do this and you should expect to pay your mechanic between $75-100 for this service. If they find anything major, report it to the dealer and deduct it from the agreed upon sales price.

Get a cashiers check from your bank. You can go a variety of routes when you pay cash for a car. We found that a cashier’s check was easiest and cheapest. You can do a wire, but your bank will charge you $25-$30 and it can take at least several hours to complete.

The dealership will likely not take a personal check. They could call your bank to verify the funds, but it’s also just as likely that they won’t. Showing up with a briefcase full of cash may also give them pause, so a cashiers check really works best in my opinion as they know the funds are good and shouldn’t have concerns about any perceived money laundering issues.

We spent maybe ten minutes in the finance department at the dealership. We told the finance person we had a cashiers check and he said we could proceed. We signed a few papers and were out with the car. If you like to earn rewards points like we do, feel free to ask if they take credit cards to make a portion of the payment.

One final note about buying a car with cash – don’t overlook the role of depreciation. Our car was almost three years old when we bought it.

The last thing you want to do is buy a new car with cash, drive it off the lot, and instantly lose 25 percent of your money. Cars depreciate each year, but you want as much of it baked in before buying it with cash.

The Argument Against Paying Cash for A Car

 

I’m not going to lie; buying a car with cash can be difficult, especially as you go up in price. However, I believe it can also be done quite simply if you’re buying an older used car.

For example, if you’re buying a car that costs $5,000 it should be relatively simple to pay cash. Yes, it will take some work but obviously not as much as a $50,000 car.

That notwithstanding, there are actually some arguments against buying a car with cash. Those are:

  • You can invest your extra money and make a better return – if you get a low interest rate.
  • It may be good for your credit to have a varied profile and to make consecutive payments. Our scores are both over 830, so this is something we really don’t care about.
  • You may be able to get access to possible discounts or kickbacks from the dealer thanks to financing through them.

These all, for the most part, gloss over the biggest problem of car payments – it’s easy to finance them until it destroys your finances. That’s one of the worst things you can do with your money.

Paying Cash for a Car vs Financing

 

You may not have the same feeling that I do towards car payments. I will admit there are valid reasons on both sides of the paying cash for a car vs financing argument. It really comes down to what you want to accomplish with your money.

If you can get a really low rate and you have extra money to invest, then it may make sense for you to go that route – especially if you get discounts for financing. It also depends on how much you have been able to save.

If you have a genuine need for a car and must finance then you really have no other option. It comes down to your personal preference and particular situation.

Just remember, the reality is you can pay cash for any kind of car – which is the important thing to remember. Don’t overextend yourself to keep up with the Joneses; they’re poor so why the heck should you be too?

If you currently have a car payment but want to lower the payments the best option is to refinance the loan to a lower rate.

You can check your rate within minutes at LendingClub to see how much you can save. They charge no origination, application, or prepayment fees and checking your rate has no impact on your credit.

Benefits to Buying A Car with Cash

 

Want to know how to buy a car with cash? Here are the steps my family took to pay cash for a car at a dealership to save money and avoid a car payment.

 

Have I said yet that I hate car payments? 😉 There are far too many benefits to paying cash for a car to make having a car payment worthwhile. Here are a few:

  • You keep power. It’s incredibly empowering to know that you can walk away because there’s not a pressing need. This gives you power as a car buyer.
  • You prevent yourself from overbuying. It’s easy to get lured in by that new car smell, or a car with all the bells and whistles and end up with a fat car payment. When you pay cash, you can only go as far as your cash.
  • You don’t eat away your monthly income. Having a car payment takes away from other, more important things, like saving for a house, saving for retirement, saving for college, etc. – especially if you finance yourself up to your eyeballs.
  • You don’t lose money with interest. See above.
  • You won’t be upside down. Cars love to depreciate. Financing a car helps you lose the depreciation game.

Ultimately, it all boils down to one thing – keeping control of your money. Financing a car adds debt and encourages you to overspend to buy the car of your dreams. When you buy a car with cash, you eliminate the possibility of debt and keep greater control over your money.

 

Do you think it’s wise to buy a car with cash? What’s the worst car payment you’ve had? Why do you think so many give into the belief that you must have a car payment?

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.

20 Comments

  • When I bought my car I had to finance it, but my plan was and I succeeded in paying off the loan a whole year early.

    Now my parents only buy their cars with cash. They’ve even bought a couple of brand new cars with cash. That’s what I’d like to do with my next car.

  • Paying cash for a car is one of the best financial decisions I haven’t made yet. I do plan on paying off my car early, but I get the desire to pay cash. I agree that if you’re financially sound and get a low-interest loan, it makes sense to finance. Otherwise, cash all the way.

    • John Schmoll says:

      Agreed Lance, I think you can go either way with it – if you’re already smart with your money. We hate payments so it makes sense for us, but if you can swing the payment and do take advantage of a low-interest loan I think it can be done wisely.

  • I love this. As soon as I paid off my first car “loan” (my parents sold me their old car at an unbeatable interest rate), I started saving for a new car. Of course, am continuing to drive my car until it is completely dead. Now that I am saving cash for a car, I am looking at more affordable cars. If I financed one, it doesn’t seem like such big deal to spend more money on a car since the payments would be paid in installments, which helps to save me even more money in the long-run.

  • I may be a hypocrite because I just paid off our two car loans a couple years in, but the math geek in me salivated over the 2% interest. I think if financing DOESN’T cause you to spend more money (I know, that’s a big assumption), you can perform some arbitrage through investing the $. But for most people the psychological value will outweigh the arbitrage, and the assumptions may not apply (i.e. they will just extend their budget if they don’t have to put the cash towards the purchase).

    • John Schmoll says:

      I totally get it DC. That’s a crazy low rate, so I totally understand the desire to take advantage – IF you go the arbitrage route. However, I believe few would actually go that route and I just hate having payments so there’s definitely a mental part to it.

  • Gigi says:

    We are about to buy a new car and we’re thinking of it this way: we are becoming our own bank paying ourselves interest. We have the funds. My husband wants a new car. So, I know about depreciation. Even so, we’ll repay ourselves by setting up a monthly payment – plus some – with “direct deposit” into the account we borrowed from. We are mortgage-free and have already downsized. Keeping life simple and debt-free!

  • Dan says:

    I’m in the car hunting phase now and the bank is quoting me 3% interest rate. I can invest my money in the market and make 6+% fairly easily. As much as I don’t like having loans I don’t see any reason why I would pay cash for the car.

    • John Schmoll says:

      Like I mentioned in the post, I understand that’s a valid argument and some like to do it. It also assumes a lot of things like you won’t overextend yourself or that you will make at least that much in the market. In all likelihood you will on the latter, but for me I’d much rather just not have a car payment. It doesn’t make sense to me to take a loan for something I already have the money for as I dislike having debt that much. That said, you’ve got to go with what works for you. 🙂

  • Ben says:

    This may be a dumb question but using a cashier’s check to buy the car… So you would have to get the grand total at the dealership, tell them to hold it etc. then go to your bank & tell them the total, then come back to the dealership with the cashier’s check?

    I hate dealerships like I hate the dentist so I’d like to be in/out/done

    I’d like to walk in there and be like “gimme this one” and then slap down the briefcase but I know that’s not gonna fly lol.

    • John Schmoll says:

      That’s not a dumb question at all. It’s a very good one in fact. Effectively, you’re correct. If you’re buying used it’s likely you’ll want to get it inspected before walking away with it. We agreed to the sales price and they let us take the car to our mechanic, who had it overnight. The car checked out and we drove it back and had our cashier’s check in hand to give to them. I’d imagine it’d be more difficult if you’re buying new as you wouldn’t have that middle step.

  • Carol Tarcza says:

    I’m looking to buy a used car from a dealership and pay cash. There are a few issues I’d want fixed with the car I’m considering. I plan on taking it to a mechanic tomorrow but one issue won’t be fixed until the day after. I’m not planning on driving back with the cashier’s check in hand in case I need to talk them down further. Is it reasonable to give them a deposit and then run to the bank for a cashier’s check for the remaining amount?

  • James says:

    My credit is very bad, like 500’s and I really want a new car. I have a decent job and but I’m not good with money don’t have any saved. But I can save. Not impossible to be honest. All it would take is some over time and budget balancing and to get rid of my ex of course. But with that said. I am thinking about getting a used car. 5000 ish would be a great start. Then I can save for save for something better. How much would recommend saving? My finances are all over the place.

    • John Schmoll says:

      That’s a good question Dave. In your situation you’d want a down payment of at least 15 percent, if not closer to 20 percent or more. So, at least $1,000 for a $5,000 car. Having a larger down payment will help make you look like a more attractive buyer to the dealership as well as a potentially lower interest rate.

  • Brodie says:

    When I went through all of this, they wanted to do a credit check before accepting the cashier’s check. Is that normal? It really made me upset.

    • John Schmoll says:

      That’a a great question Brodie. Our dealer did not ask us to do this. I just did some research on this, and dealers should not ask you to do this if buying in cash or you come with your own financing. They’ll often say they need to do it to comply with The Patriot Act…but that has nothing to do with credit checks. They do need to have you fill out a government form if paying with over $10,000, to screen for you on the terrorist watch list, but that has nothing to do with a credit check. I’ve gone ahead and updated the post to indicate this.

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