Does paying cash for a car for a better price work?

Question

I have heard that you can often negotiate a better price for a used car if you pay with cash. Here is just one of many articles on the topic. In this case, I believe that by paying with cash people mean handing over a stack of $100 bills, but sometimes people use the phrase to indicate paying for something out-of-pocket without financing. If there is a significant difference, assume for the purposes of this question that I mean paying with $100s.

Given that auto dealerships probably make a good deal of their profit in financing vehicles, is it still true that paying with cash is better? Other than the obvious no-no of telling the salesman how much money you brought with you, what are good strategies to employ? Should you haggle on price or trade-in-value of your car first? Tell them you're paying cash first?

Answer 1

Given that auto dealerships probably make a good deal of their profit in financing vehicles, is it still true that paying with cash is better?

Better? It might be. You need to do your homework. With a new car they frequently have a deal 0% or $1,000 off. Sometimes it can be better to get a loan from your bank, and get the cash from the dealer. Though proving you did get $1,000 off the deal is harder to prove.

Other than the obvious no-no of telling the salesman how much money you brought with you, what are good strategies to employ? Should you haggle on price or trade-in-value of your car first? Tell them you're paying cash first?

Normally I would advise you to get a loan commitment from your regular bank. That way you have a offer with a known rate and term. You would only execute that loan if the dealer didn't have a better loan deal. But you are planning on not needing a loan.

Next get an offer from a place like carmax. They will give you an offer good for 7 days. Do this before you are ready to buy a car. That way you know what another place will pay you for your existing car.

Tell them upfront you are not trading in a car. Tell them upfront you will not be needing a loan. This simplifies the negotiating, If you don't tell them this they will be modifying the price, rate, term, and trade-in value. It is easy to become confused. Paying without a loan means there is only one variable.

Regarding cash vs check:

With cash you can be out the door today. If you need a check it can slow down the process. Some places might not take a personal check, they may want a cashiers check. That would mean giving them some money by cash, or check to hold the car, and then making a trip to the bank and returning later.

Cash has risks. How much is needed? You will have two forms submitted to the government: one when you pull the money from the bank, and one when you buy the car. The good news is that they will cancel each other out.

Regarding a check, I have used this extra trip to the dealer to get an offer on my old car, one time they made a better offer so I took it.

Answer 2

Usual advice from folks like Consumer Reports is to insist on negotiating the price of the car before considering whether dealer finance is desirable. That keeps them from playing games with shifting the money between these two pockets; this forced them to compete for your business in each product independently, or give you an explicit statement that they are increasing the cost of one to offer a better deal on the other.

The one time I bought a car from a dealer rather than a friend or co-worker, I walked into the showroom with one of CR's printouts in my hand, a list of exactly which options I was willing to pay for, and the dealer cost for each one, and told them I was willing to pay a reasonable amount over that real cost. The salesman took one look at the document I was carrying, said "that's about right" and gave me an acceptable quote; I signed without wasting any of his time, giving him good profit per hour; it also didn't waste any of my time.

Admittedly I was buying at the end of the model year, was willing to wait for the car to arrive, and honestly didn't care about color -- I ordered blue, it was easier for him to deliver in red, no problem.

And admittedly used cars are an entirely different ballgame. In discussion with dealers about some software design, we found that used car dealers actually wanted to allow customers to lie (detectability) on their loan applications and therefore didn't want us auto completing answers which might discourage liars; they preferred to complete the sale and just adjust the cost and market of the loans.

Answer 3

You're likely to get a better deal with financing the car through the dealership and then paying off the loan with your cash immediately, just make sure there's no prepayment penalty.

The dealership will probably not agree to take literal cash, especially for more expensive cars (see the reasoning in my answer to your other question). What people usually mean by "paying cash" is paying without financing.

However, financing is the biggest profit maker for the dealerships. You'll see in a lot of advertisements that where deals are contingent on financing (or leasing, which is an even better money maker). Even if it is 0% or low APR financing, it's still a good money maker for the dealership.

That said, in some cases they may agree to give you bigger discounts for cash payments. I've seen that happen with used cars, where the dealership has much wider margins. They can use the cash to quickly buy more used cars to move. With new cars their margins on the car sale itself are much slimmer and the product turnaround depends on the manufacturers' capacity and not on the dealership's cash flow.

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That said, if you pay cash you may want to compare the value of the money to the cost of the loan. In my personal experience, car loans and home loans are more economically efficient and sound than paying cash.

Answer 4

Let them assume you are financing until you have agreed on a price for the car. They are expecting to make some money on the back end of the deal from the financing and will be less likely to negotiate if you tell them up front you have outside financing or are paying cash.

Car dealers don't want you paying cash.

You might also read my other answer which covers this and more about buying cars from dealerships.