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 cash instead.

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 always the best option. Here are some things to keep in mind if you are considering buying a new or used car cash.

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What does it mean to buy a car with cash?

If you’re shopping for vehicles, 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. Rather, it means that you pay for the full cost of the vehicle in advance. After paying the dealer, you can walk away with the keys as the car’s rightful owner.

While most car dealers will let you buy a car with cash, you usually have a few other payment options. You can expect almost all car dealerships to accept a cashier’s check issued 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 benefits include:

  • Spend less money: When you buy a car cash, you avoid paying interest on a loan and other lender fees.
  • To make wise decisions: If you’re paying cash for a car, you’re probably on a tight budget. You won’t be tempted to buy a more expensive car than you can afford.
  • No monthly payment: You won’t have monthly payments when you buy a car in cash, like you do with a car loan or lease.
  • Get discount: Some car dealers will give you a discount when you pay cash for a vehicle. 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 of the disadvantages of buying a car with cash:

  • Fewer vehicle options: When shopping for a vehicle, you’ll probably be shopping on a tight budget. While this has advantages, it also means that you will be limited in the types of vehicles you can buy.
  • Depletion of cash reserves: Buying a car with cash is often a big expense. When you pay for the car up front, you can deplete your savings quite significantly.
  • No Merchant Incentives: It is common for car dealers 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 these offers.
  • No opportunity to build credit: Getting a car loan means taking on debt, but it can be beneficial to your credit score. Making loan payments on time can improve your credit, which you can’t do if you buy a car cash.

How to buy a car with cash

The general process of buying a car is quite complex. This involves budgeting, car shopping, negotiating, obtaining financing, and sometimes a trip to your local DMV. Buying a car with 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 should do is start saving money. Although it seems obvious, you will 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, as well as some additional fees.

    Think about what type of vehicles you are interested in, and how much money you will need to save to buy one. 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 shop for cars online or go to the dealership and find a model you like. Make sure you buy with your budget in mind. You can even ask the salesperson to only show you vehicles that fit your price range to avoid being tempted by higher-end models.

    Negotiate the final price

      Once you’ve found a car you like, it’s time to negotiate the 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 negotiator. Just make sure to back up your offer with convincing facts.

      For example, if you want to offer $5,000 less than the vehicle’s MSRP, come prepared with information indicating that the vehicle’s fair market value is slightly lower than what the seller is asking. If there is something mechanically wrong with the car, you can also factor the estimated repair costs into your offer.

      Get your payment ready

        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 it is 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 the merchant’s or seller’s account.

        Whichever option you choose, make sure you know the final amount of the transaction. The cost of a vehicle is usually more than just the MSRP. Even if you pay in cash, you will have to pay other fees, such as a merchant fee and sales tax.

        Buy the 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 away.

          Some car insurance companies automatically cover new vehicles for a short period of time before they need to be formally added to the policy. However, if your policy doesn’t allow it, or if you don’t already have car insurance, you’ll need to buy cover and insure the vehicle before you can drive it home

          Should you buy a car with cash?

          Buying a car in cash can be a good financial move. This 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 that you can reasonably afford. When taking out a loan, it’s easy to be tempted by more expensive vehicles because the cost is split into smaller installments.

          Despite the benefits of buying a car with cash, it’s not the best option for everyone. Not only does this require a large amount of savings, but it can quickly deplete your account. You can also miss out on financing deals, such as 0 percent financing for 36 months, which can make the cost of borrowing money quite cheap.

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

          Head shot by Elizabeth Rivelli

          Finance & Insurance Editor

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