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How to Buy A Car With Cash In 5 Simple Steps [2020 Update]

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It’s no doubt that cars are expensive. This makes buying a car with cash exceedingly difficult to accomplish. The majority of people finance the purchase, but that’s not always the wisest choice. Read on to learn how to buy a car with cash without a hassle.

How to Buy A Car With Cash

 

Making a large purchase may seem impossible. My wife and I didn’t finance our last car purchase and know it’s possible. Here are the steps you need to follow if you’re considering paying cash for a car.

1. Save Your Money

 

This is an obvious first step. Regardless if you want to buy a cheap used car for cash, or planning to spend $20,000, you need to save money.

You want to regularly save money and set it aside in a savings account. CIT Bank is a terrific option for a money market account that lets you automate savings.

You only need a minimum balance of $100, and they’re currently paying .50 percent. It operates similar to a savings account, and has the same FDIC protection.

You want to save money each week, bi-weekly, or monthly. Begin to track your spending, if necessary, to identify additional savings opportunities.

You can also consider a side hustle, like delivering food for Postmates, to increase savings as you can earn up to $25 per hour.

It doesn’t matter if you want to buy a $2,000 or $20,000 used car, saving prior is essential to purchasing a car with cash.

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2. Find the Car You Want

 

Researching the kind of automobile you want is important, regardless if you finance or not. This helps you determine your savings goal. It also helps you learn which cars are reliable and ones you want to avoid.

Edmunds.com is a terrific resource to research cars for pricing. Consumer Reports is excellent for researching reliable cars. You want to consider the following as you research:

  • Do you want a new or used car?
  • What models do you want?
  • What are the must have features?

Use the above to guide your research and determine how much you need to buy a reliable car with cash.

3. Learn How to Negotiate Effectively

 

Congrats, now you have money saved and have identified the car you want to purchase. Now it’s time to determine where to buy it and how to get the best price.

Negotiation is key, even when buying affordable used cars, and many people let it overwhelm them. Don’t let it hold you back as it can save you a significant amount of money. How you negotiate will depend on where you are buying the car.

Buying From A Dealer

When you buy a car with cash you may be tempted to tell this to the salesperson before agreeing to a price. Don’t do this!

You want to keep the financing discussions purposely vague to only deal with the purchase price. This gives you the power as it does not fully inform the salesperson about your financial situation.

If the rep pushes the discussion let them know you have financing lined up, but will be open to listen to offers with the finance department.

*Related: Need to save money on tires? Check out our guide on best places to buy tires and save big money.*

Determine a fair price for the car you want, then work with the sales rep to get the car as close to that as possible. Once you agree on a price, they will have you visit the financing department. That’s when you inform them of your plan to pay with cash.

Buying From A Private Seller

If you have much experience buying cars for cash, you know most private seller car purchases are done without financing. This simplifies the negotiation process, especially if neither party has a lot of experience negotiating car prices.

Arm yourself with the same knowledge as if you were buying from a dealer and work amicably with the person. If they’re motivated to sell the car, and you offer a fair price, you’re likely to be successful.

4. Take The Car to A Mechanic

 

You want to ensure any car you purchase is reliable. This is of particular importance if you’re trying to buy a used car with cash.

It’s not always wise to trust a service department, so you want to ask the dealer if you can take the automobile to an independent mechanic to look at it. This is a reasonable request that they should be willing to accommodate.

Most mechanics charge $75 to $100 for this service. If they determine it’s reliable you’re good to purchase it.

This process may be more difficult when purchasing from a private seller. If they’re unwilling, you can ask for past service records and even ask for a CARFAX report if that would help you feel better.

5. Pay With A Cashier’s Check

 

When buying a car with cash from a dealer, most won’t accept a personal check or actual cash. Before you go to the dealer to purchase the car you want to stop at your bank and purchase a cashier’s check for the amount necessary.

Expect a small fee to purchase a cashier’s check. Most banks charge around $10 or $15 for the service.

You can attempt to pay via credit card at the dealership, but most dealers cap it at a maximum of $3,000.

If you’re purchasing a car from a private party you also want a cashier’s check as bringing cash can be a safety issue.

Advantages to Buying A Car with Cash

 

I hate car payments. Beyond that, there are several benefits to purchasing a car with cash. Those include:

  • Spending less money
  • No monthly payments
  • Fighting depreciation
  • No interest payments
  • You don’t eat away your monthly income with payments

Paying cash for a car vs. financing is a common debate within personal finance. Interest rates are usually low, if you have good credit, but having a payment also reduces your monthly income. It also potentially saves you thousands of dollars in interest over the life of a loan.

When you buy a car with cash, you have more power at the dealership. It allows you to walk away if you don’t need the car since you’re not depending on their financing.

Disadvantages to Paying Cash for Cars

 

Not everyone can amass enough cash to avoid financing. Here are some common disadvantages to buying a car with no financing:

  • It can take substantial time to grow the cash to buy a car
  • You may hurt your credit as credit scores like it when you have a diverse profile
  • Depleting cash reserves
  • Less ability to negotiate
  • You could earn more by investing the cash instead of financing the car

Financing vs. paying cash is a challenge for many people. It can be difficult to save enough money to buy a car outright, but financing gives us the idea we can purchase whatever we want.

*Related: Not certain if you should buy or lease? Read our leasing vs. buying a car guide to learn which is best for you.*

While true, that can negatively impact your financial livelihood if you finance for too long.

Do You Need Credit to Buy A Car With Cash?

 

A common misconception is the dealer will need to run your credit report if you’re not financing it through them. 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 try and use it to market their financing to you. If you’re paying with more than $10,000 in cash they do need to have you fill out paper work though.

The government requires it to ensure you clear the terrorist watchlist, but that does not include running a credit report.

Summary

 

Purchasing a car is a major expense. Regardless if you buy used or new, it’s going to be costly. Car payments also severely restrict a monthly budget. With some effort, you can buy a car with cash and save money on interest.

 

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.

45 Comments

  • Leah | A Relaxed Gal says:

    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.

    • John Schmoll says:

      That’s awesome Leah, we’ve done the same in the past with car payments and loved cutting those payments shorter than expected.

  • Lance @ My Strategic Dollar says:

    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.

  • Rachel @ The Latte Budget says:

    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.

    • John Schmoll says:

      Awesome that you were able to do that Rachel! Totally agreed, financing makes it much easier to buy more since the pain is spread out.

  • DC @ Young Adult Money says:

    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. 🙂

    • DJ says:

      The fallacy in your argument is extremely subtle, and a lot of people miss it. Believe it or not, mathematically, a risky 6% return loses out to a guaranteed 3% interest rate.

      Here’s a quick example. We all know that the stock market does not have a uniform guaranteed rate of return. Suppose the stock market loses 20% one year and gains 32% the next year. On average, sure enough, that’s an average gain of 6% per year (12% divided by two). But a $10000 investment that loses 20% ($2000) in one year and gains 32% ($2560, namely 32% of $8000) the next year ends up with a value of $10560 after two years.

      By comparison, your $10000 loan at 3% interest accrues $300 in interest the first year and $309 the second year, for a total interest payment of $609. (Yes, in reality you would be paying down the principal, but that’s not the point — your argument logically implies that one should never pay down principal, because borrowing to invest is supposedly a winning strategy. It’s not.)

      Therefore you have gained $560 and lost $609, and I’m not even factoring in the income taxes that you would have to pay on the $560 since you can’t get a tax deduction for car loan interest!

      If you had a *guaranteed* 6% rate of return, then sure, go for it, borrow money at 3% to yield 6%. But that’s not what the stock market gives you. The stock market gives you a highly volatile and variable rate of return. Borrowing money to invest in volatile assets is a much worse strategy than you think it is. The correct way to invest in the stock market is with dollar cost averaging, which really does give you something close to the actual average rate of return.

  • 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.

      • aj says:

        So if i were to buy a new car with cash, how would i go about getting that cashiers check unless i go in with a set lower amount then pay the rest with a credit card..

        • John Schmoll says:

          Good question AJ. I sort of cover it in the post. But, you want to set the price first then ask them to list it as “pending sale” so you can take it to a mechanic to look over. That will give you the amount needed for the cashiers check. If they won’t do that for you, get them to quote it as close as possible and put any overage on a credit card.

  • 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?

    • John Schmoll says:

      Yes, I do believe that would be a reasonable request – especially considering you’re getting work done on the car prior to purchase.

  • 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.

  • Donovan says:

    We are planning on buying a used car in the $5,000 to $9,000 range. We will be paying cash and I also have a low credit score.

    Could I not pay using my credit card, assuming I’ve discussed with my credit union? We may be purchasing out of state and a bank check would be difficult not knowing the final price.

    • John Schmoll says:

      Yes, you should be able to pay any overage via your credit card. Each dealer is different, but many let you pay up to $3,000 on a credit card.

  • Harvey says:

    Hi!, I am planning to buy a new car, a Honda civic to be precised, and I am a new immigrant so I don’t have a good credit, I am what they call a “Ghost”, I’m trying to save so that I could pay my desired car in cash, is it ok to just use my “debit card” to purchase it without getting a cashier’s check?, or is there a limit of how much I can pay using my debit card?

    Thanks

    • John Schmoll says:

      That really wouldn’t be advisable Harvey. For a variety of reasons you wouldn’t want to use your debit card to buy a car.

  • Jenny J says:

    Hi John! We are hunting for a car and we’re paying cash. I’ve been doing my tips to pay cash due diligence, however, I’ve flipped the script. I am actively telling dealers I’m going to be paying cash. The results have been so interesting to say the least. My husband is handicapped, so going to dealer after dealer is a really too much. One big dealer, we are a Nissan family, had a car we saw online (I didn’t call) and we were 2 days away from visiting and getting if all checked out, but it got sold, thank god. I found another on their website and called them this time, butter wouldn’t melt in her mouth and I thought she was going to come through the phone and give me a pedicure!!! Right up till I said I know you make profit from financing but what deal for cash? The 2017 Rogue was listed low mileage and $22,500 and it had been a lease. She said hold on, picked up and immediately put me back on hold again, and finally came back and said $500 extra making it $23,000. I laughed and said have a great week. Lost a good customer, forever. So I started going online then calling the dealers and saying the same thing. And I’ve also had the sales person say yes we take cash no penalty. Price listed. Of course we are going beyond just a call to do the the extra steps and off site evaluation. Don’t get me wrong, in our life there was a time that if we hadn’t financed we’d be walking. But my mind is blown that cash is a punishable offense. Now I am using the word cash as a way to judge dealers who value their buyers and take care of them and future issues/buying from them again vs a bored sales person who could care less once the big C is mentioned. Thanks so much for your great advice!

    • John Schmoll says:

      Wow. Unfortunately, your experience isn’t too surprising. They make so much on financing/add-ons that many cut their noses off to spite their face when it comes to making a sale.

  • Chadwick Cunningham says:

    What if one did not want to pay with any kind of check, but with cold hard cash instead? Would it be frowned upon to have a suitcase full of cash with which to pay?

    • John Schmoll says:

      I’m not 100% certain, but I believe the dealership would ask for a Cashier’s check, or something similar. Otherwise, they may risk compliance/regulation issues.

  • VVT says:

    What about the option of negotiating the price down, opting to finance a used car through the dealership, then paying it off after the first couple of payments? I do have the cash to purchase the 2017 Ford Fiesta I want, but am wondering if the practice I just outlined would offer me a deeper discount on the car since I’d be agreeing to finance it. Are there penalties for doing this? How can I find out the penalties in my state? I’m in SC. Also, I am approved by my bank with a loan that would more than cover this car. Is financing through my bank the equivalent, to the dealership, of paying in cash? Meaning that if I mention this they would be less inclined to negotiate on the price of the car?

    My bank has no physical locations so using a cashier’s check is not an option. Would a money order provide the same security to a dealership as a cashier’s check?

    • John Schmoll says:

      All good questions. It really comes down to personal preference. I know people take your approach & works just fine. I prefer avoiding payments, so go that route. The penalty would be determined by the lender so you’d want to check with them. Yes, if you have a loan from your bank the dealer views it the same as cash as they can’t make money on giving you a loan.

      You’ll want a cashier’s check. Cashier’s checks are drawn against a bank so they’re typically viewed as more secure and can be done in larger amounts than money orders.

  • Sophia says:

    Hi so I have terrible credit. Cards maxed out. Apparently the bank that had previously financed us wont finance us now for the 25k we asked for. So we saved and have around 20k. Reading your post and the comments we will use a cashiers checks. However the car we need is more like 25-29k how would I go about using half cash half finance? Do I just go in say My finance is taken care of or I need financing? Either way we agree on a price first before anyone runs our credit? Thanks?

    • John Schmoll says:

      That’s a good question. Are you saying your bank will offer financing for the balance? If so, they should be willing to given the cash you have. If not, you agree to the price and when they come to financing tell them the amount you have and only plan to finance the balance. Best wishes!

  • Theodore R Kazmar says:

    I’m 69 years old and have always bought a car with cash for both new and used cars. I have also always paid using a personal check. To pay with a personal check you will need to fill out a credit report and I believe they look at your bank account to make sure you have the money. Also when paying with a check, it helps using your old car as the down payment, something tangible they have when you walk out the door. There is a lot of fraud with Cashiers checks. I believe the dealers like personal checks better.

    • John Schmoll says:

      Awesome you’ve always paid via cash. But, personal checks are just as prone to fraud, if not more so, as a cashier’s check. 🙂

  • Dee Lopez says:

    I’ve done Some research, and the Patriot act does not require credit check to be run when buying a car cash. This is a red flag for an untrustworthy car dealership.
    However the rest of your advice is very helpful as I am looking to buy a car cash, and was looking into how to go about it. Thank you for sharing your experience with us.

    • John Schmoll says:

      Thanks for your comment Dee, but you might want to read the entire article. 🙂 We touch on that with the following statement:

      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.

  • Ems says:

    Hi john. Quick question. You mention in your article that paying cash somehow avoids depreciation. How is that so? If I buy a 40k to 50k car that is new for cash, it will obviously still depreciate. If I keep this car for about three years and it is a solid brand and model like a Lexus, I may break even I suppose after this time frame but it is not a guaranteed outcome.

    • John Schmoll says:

      Sorry, just saw your comment. 🙂 I didn’t say it avoids depreciation. I said that if you buy brand new you’re going to see a big hit immediately. When paying with cash, I’d rather have that baked in and buy a car that’s several years old.

  • Julia Williamson says:

    If you buy a certified used car from a dealership, can you skip the step of having it checked out by a mechanic? We also plan to buy our car with a cashier’s check, but not sure how much to get the check for if we are skipping the mechanic check. The amount that we are not willing to go over? A little less and write a personal check to cover the difference? Or do we put down a deposit and then return the next day with the cashier’s check? We’ve only financed cars in the past and are excited to pay with cash. Thanks for your article – it is very helpful!

    • John Schmoll says:

      That’s an excellent question Julia. Sure, you can definitely do that. I would caution that it be from a reputable dealer though. As long as you’re comfortable with it, then I wouldn’t see any problem with moving forward. I would do a little less, and write a personal check/pay via credit card for the small difference. Happy to help.

  • Jill says:

    If you don’t have enough cash saved up when it’s time to buy a vehicle (but you do have a 5 mo emergency fund), is it advisable to take the cash payment for the vehicle from your emergency fund, then make interest free payments to yourself until it’s paid back? OR would it be better to take out a bank loan for the vehicle to protect your full (money market invested) emergency fund? Neither are ideal scenarios, but sometimes life is not ideal.

    • John Schmoll says:

      That’s a good question, Jill. Given our current climate, I’d say it largely depends on your job security. If it’s secure I’d say it’s ok to pull some from your EF and repay yourself. Rates are so low currently, that I don’t think it’s an issue to take a loan – especially if you’re planning on paying it off quicker than the loan terms.

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