Buying a Car With Cash

Posted by Charlie Maniates | Jun 7, 2019

Buying a car with cash has some advantages, but it’s not always a better option than financing. The right choice varies depending on your financial situation and the car you’re buying. Follow along to find out circumstances where buying a car with cash makes sense and where it doesn’t.

Should I Buy a Car With Cash or Finance It?

If you have more money than you know what to do with, you can probably go ahead and pay cash for whatever car you want (just know, we’re all very jealous). Unfortunately, most people don’t live that kind of luxurious life; so, for the rest of you, it’s important to be mindful about your financial stability while making this decision.

Consider a $20,000 car. If you have that much money saved up, you can certainly buy the car with cash and avoid having to worry about taking on debt or making monthly payments until a loan is paid off. However, that’s probably a significant chunk of your savings, and we all know that the game of life isn’t always sunshine and roses. By paying the full cost of the car, you take away quite a bit of cushion from your savings that, when faced with unexpected troubles, would be useful in a best-case scenario and necessary in a worst-case scenario.

Instead, you can preserve your savings by financing the car, putting down a strong down payment and taking on a shorter loan term so you can pay it off within a reasonable amount of time. For example, if you put down $5,000 for that $20,000 car and secure a 36-month loan at 5 percent interest, your monthly payments would be only $450 over the course of three years (excluding taxes and fees, of course). In the above scenario, the cost of financing and having more cash at your disposal over the course of three years is $1,200 more than if you paid the car off upfront with cash.

But obviously not all cars cost that much money. In the case of, say, used cars that cost less than $5,000, financing probably isn’t worth it due to their diminished value. You might also find it difficult to secure a loan at a favorable interest rate because lenders wouldn't profit enough from a loan that small. For cheaper used cars, it’s probably best to pay the full amount.

How to Buy a Car With Cash

If you do plan on paying for a car with cash, whether it makes sense to or not, obtain a cashier’s check for the total cost of the vehicle as this is a dealer’s preferred payment method. While a briefcase full of bills does sound cooler, federal law requires dealers to report cash payments exceeding $10,000, which would require additional paperwork.

Finally, don’t treat the car-buying process any differently if you’re paying in cash. Here are some tips as a refresher:

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