Home / Buying a Car / Why You Should Never Pay Cash For A Car? 5 Pros and Cons

Why You Should Never Pay Cash For A Car? 5 Pros and Cons

650 Views

With the help of the internet, pricing for vehicles has become transparent in the past couple of years. People in their homes, on their front porch, or with a cup of coffee in a driveway have easy access to find out the actual purchase price of any vehicle.

So, why you should never pay cash for a car? Paying cash for a new car might not be the best option for you. Dealerships are not incentivized to sell cars in cash. On the contrary, their main goal is for you to finance the car to get you to pay interest on an auto loan.

This is because financing and interest make a big chunk of the gains of a dealership. So do not believe that you will have an edge when paying with cash for a vehicle. Instead, the best way to negotiate with dealerships is to go over all of your options.

Most of the time, you can enjoy extra benefits by financing a car. Not only will you have the opportunity to drive a brand new car with little to no money, but you will also be saving money by having tax breaks and incentives.

However, if you do not have good credit, it might be hard for you to secure an auto loan. If this is your case, there are ways to find out if dealerships offer better prices for people who pay cash to buy a car. This can be done by doing an online search or calling around different dealerships.

Table of Contents Show

Why shouldn’t you buy a car with cash?

First, If you have decent credit, financing a car purchase is usually the best option. You are going to be able to secure a low-interest rate and take advantage of paying a low monthly car payment. This will allow you to have some extra cash on hand so you can pay other high-interest rate accounts like credit cards.

Remember that 3/4 of the revenue of dealerships comes from interest, accessories, parts, and services. You can get the financial department to offer you special discounts or incentives for those people who are looking to get into a 72 or 60 month loan term. Make sure that the loan does not have an early payoff penalty.

Once you have managed to go thru all your options and you have negotiated the price of the vehicle, then you can now start evaluating how much money you want to give for the down payment. Here is where you will try to get the best interest rate and monthly payment according to what is best for your budget.

Don’t forget that dealerships try to sell more than just the car. Many will offer you an extended warranty, gap insurance, and a service plan that can save you money. In fact, if you are planning to pay cash for the vehicle anyway, then this is just extra money you can pocket.

However, if you are not looking to get into a monthly payment, then to purchase a car in cash makes sense. But don’t just go to the dealership and throw out the words “I am going to pay in cash” because you are going to be killing all of your options to negotiate.

Do car dealers like it when you pay cash?

NO! NOT AT ALL. They don’t like it when you do that because they have fewer options to put on the table. Even if they have a special price for those who pay cash, most of them still will try to offer you extra deals and benefits as if you were going to finance the vehicle.

As mentioned before, dealerships only make 1/4 of their revenue with the actual sale of the new car. A used car might give them more revenue with the sale, but most of the time, this is not the case. So for them, buying a car outright may not be in their best interest.

Is it better to pay cash or finance a car?

Car buying has its pros and cons. The answer to this question relies on your current financial status. If you can easily afford the monthly payment, then financing can make sense.

However, if an extra car payment puts a strain on your budget, then it is better to pay with cash. When you pay cash for a car, you’re not going to have to worry about making monthly payments. You also won’t have to worry about interest rates.

However, if you don’t have good credit, it might be hard for you to get a car loan. If this is your case, there are ways for you to find out if dealerships offer better prices for people who pay cash.

If this is the case, do not be afraid of asking and trying different options until they come up with something that makes sense for you and your budget. Use the cash that you have on hand to pay your current credit card debts. When you do so, you are going to be saving more money on interest.

Is it bad to pay cash at a dealership?

You can just buy the car with cash and have no worries about financing it. But remember that dealerships are in business to make money. So they are going to try to sell you extra items that you may not need or want.

Most car buyers end up regretting the extras they’ve purchased when it comes time for their next purchase. Perhaps one of the biggest perks for buying with cash is that there’s no co-signer on your loan, which means you don’t have to wait until after closing before getting the keys to your new vehicle.

This allows you to take delivery of your new vehicle right away. You can even drive off immediately if there is nothing else left for you to do at the dealership once the paperwork has been signed and financing approved.

Why do dealerships prefer financing?

Even though you could buy a car with cash, dealers prefer financing. This is because most of their revenue comes from the interest that they get on the loans that the buyers are signing for. In simple words, when you finance a car, they could be making way more money on the transaction.

So, even if you do have enough money to purchase your vehicle in cash without financing it, they still might not give you a better deal since they would rather finance the car at a higher interest rate so that it nets them more money.

Remember the 1/4 of the revenue that they get from selling new cars? They can easily get more out of you by financing the car at a longer loan term, so calculate the cost that is involved when it comes to buying a car. This is not always bad, depending on how much you are willing to pay monthly for your car payment.

Pros and Cons of Buying A Car With Cash

Car loans are available in different sizes with interest rates that vary. Some dealerships offer dealer finance which will make the overall process much easier. You could also head to the bank, but they’re a lot stricter when it comes to your financial situation.

Then there are companies that are dedicated to providing vehicle finance such as C1 Car Loans. By comparing different car loan companies, you can get a better idea of which companies are too expensive by looking at the complete offer.

Whenever you search for a car, you need to keep in mind that there may be a possibility that you will have to finance the car. When this is not your case, it’s important for you to know all of the cons and pros of purchasing a car in full with cash.

Not Paying Interest Rates

Every time you buy a car with a car loan, you are going to have to pay an interest rate. This will mean that you are not just paying for the amount of money that is involved with buying the car but also for the interest that you are being charged during the loan payment period.

This means that if you can afford to buy a car in full, then do so and avoid this extra expense. The interest rates are usually calculated based on the car’s average selling price. So if you are able to purchase a car that is much cheaper than the average selling price, this means it could be lower.

However, if you buy an expensive or luxury car, then it is likely that the interest could also be pretty high. You would have to evaluate at this point if you are ok with paying for that extra cost of financing the vehicle with a car loan.

Do Not Require Good Credit

If for some reason, your credit score is not good enough or you have a very low credit score, this does not make it impossible to buy the car in full with cash. This is because finance companies are looking to put more money on the table, which means that if they are able to do this, then you could also get approved for buying your car with cash.

You can expect to pay a higher interest rate if your credit score is bad. If this is your case, it can make sense to buy the car with cash instead of using a financial institution.

Avoid Monthly Payments

Paying for a loan would mean that you have to commit to making a monthly payment. This is something that most people don’t enjoy doing because it’s basically throwing their hard earn cash down the drain.

If you can afford to buy a car in full with cash, then this means that you will not have to worry about wasting any of your money since there won’t be any payments that have to be made. You can use that extra cash to pay down a credit card debt or to help a family member.

Avoid Car Loan Fees

Loan fees are something that is pretty common when it comes to borrowing cash from a bank. Normally, if you take out a loan for buying your car, then you would have to pay for this fee which will be added on top of the overall cost of the vehicle.

Why wouldn’t you save some cash in any situation? Whenever you search for a loan, make sure you talk to the financial representative and ask for all the costs that may be involved. The exact amount of cash that you save will depend on the total price of your car and the interest rate that has been applied to it.

This means that you need to calculate if paying no monthly fees is worth it when compared with this amount of extra dollars you would have to pay for purchasing your car in full instead of getting a loan. Sometimes the dealers will assume these types of expenses, and you might not even need to pay it.

Get The Best Sale Price Of The Car

Buying a car with cash does not actually mean that you will buy it for the best price. The dealer still needs to make a profit which means that they are going to have to charge you more.

However, this does not mean that you would automatically pay the higher price of what the car is actually worth. Since there isn’t any loan involved with buying the car in full, the salesman only has one goal, and it’s selling it immediately.

Summary

Now you understand why buying a car with cash does not mean that you get such a great deal on it. You just get to avoid all the extra expenses that come with buying a car through financing.

The loan is one of the main reasons why people end up paying too much for their vehicle in cash, but there are other factors that also contribute to this, which makes it worthwhile to find out in advance.

Last Updated on: July 14, 2022

Hi, my name is John Snow and I am a car lover. With two decades under my belt fixing and driving cars, I'm always on the hunt for fresh, cutting-edge methods to give my ride a performance boost. Driven by my zeal to decode car problems, I'm on a mission to equip vehicle owners with accurate and handy tips. By doing so, they can fix their rides while saving both time and cash.

By John Snow