Buying a car with cash gives you freedom from monthly payments and potential interest charges and also gives you a more powerful position during price negotiations.
However, buying a vehicle outright requires careful planning regarding your budget, savings, negotiating tactics, and more.
Below is an article I created (as a former used car dealer) that will guide you on how to buy a car with cash so that you can avoid the potential pitfalls and maximize the power of being a cash buyer.
Related Articles to Read:
- Is It Suspicious to Buy a Car With Cash
- How To Negotiate Used Car Price
- How Much Do Dealers Markup Used Cars
- How Much Do Dealerships Make on New Cars
- How do you find out how much a dealer paid for a car?
Table of Contents
- Save up enough money to buy the car you want outright before visiting dealers. Go in armed with your full budget.
- Negotiate the best possible price before revealing you plan to pay cash. This gives you leverage.
- Use a cashier’s check for security when paying rather than cash. Expect some tax paperwork.
- Weigh the pros and cons carefully for your situation. Financing can sometimes be cheaper overall.
- Plan for maintenance, insurance, fees beyond just the car’s price when budgeting.
Should You Buy With Cash or Finance?
Whether to pay cash or finance depends entirely on your personal finances and the details of any financing offer.
Pros of Paying For A Car With Cash
Potential pros of paying cash include avoiding interest payments, keeping your savings intact for other uses, negotiating from a position of strength, and owning the car outright immediately.
Cons of Paying For A Car With Cash
However, possible cons are missing out on special financing deals from automakers, limiting your selection of cars, and losing a large chunk of cash at once.
Crunching the numbers is essential. For example, 0% financing for several years may actually be cheaper overall than paying cash when you factor in potential investment returns on those savings.
How Much Cash Do You Need to Buy a Car?
Since late 2022, used car prices have eased somewhat but still average around $28,000. Meanwhile, new cars now cost over $48,000 on average. Paying cash requires saving up enough to cover:
- The full sticker price of the car
- Taxes and government fees
- Dealer conveyance or documentation fees
- Initial registration costs
- Sales tax on the purchase price
You must also budget for ongoing ownership costs like insurance, gas, maintenance, and repairs.
Steps to Buying a Car With Cash
Follow these key steps when paying cash for your next car:
1. Set Your Budget
Determine the exact vehicle you need, research fair prices, and set a maximum budget accordingly. Remember to allocate cash for taxes, dealer fees, and immediate ownership costs too.
2. Save the Needed Cash
Building up enough savings takes discipline. Budget tightly and direct extra income to your car savings account monthly. Online tools can help track your progress.
3. Shop for the Right Car
Once your savings target is met, only look at cars matching your budget. Focus on the features you truly need rather than want. Test drive before deciding.
4. Negotiate the Best Price
Never disclose upfront that you plan to pay cash, and certainly do not assert it with any sort of arrogance.
Whenever customers came to me and immediately touted that they were a cash buyer I knew they had no idea what they were doing.
Once settled on a car, negotiate the lowest price possible first under the assumption you are financing.
5. Finalize the Cash Payment
When ready, use a dated, signed cashier’s check as payment. Get all paperwork like the title transfer and be prepared for tax reporting requirements over $10,000.
Key Things to Avoid
When buying a car with cash, avoid these common mistakes:
- Telling the dealer immediately that you have cash – it weakens negotiation power.
- Skipping an independent inspection, especially on a used car.
- Paying cash if it wipes out your emergency fund.
- Not researching financing rates – a great deal could beat cash.
- Overlooking total ownership costs beyond the car’s price.
My Final Thoughts
Paying cash for a new or used car gives you freedom from debt, monthly payments, and wasted interest charges.
However, being a cash buyer doesn’t make you immune from being taken advantage of by a dealer. Be smart and follow the steps I laid out above to maximize your power when buying a car with cash.