Buying a car with cash: everything you need to know (2024)

Financing a vehicle with an auto loan is a common option for car buyers. But if you want to avoid debt or you are saving for a new car, you can choose to pay in cash.

Before you buy a car for cash, there are some things you should know. Even if you have the money available, buying a car with cash isn't always the best solution. Here are some things to keep in mind if you're considering buying a new or used car for cash.

Not ready to buy a car with cash yet? Easily compare the car loan options below.

What does it mean to buy a car with cash?

If you shop for cars, you've probably heard the term "pay cash." But what does that actually mean?

Paying "cash" for a car doesn't necessarily mean you're using real dollar bills. Rather, it means you pay the full price of the vehicle upfront. After you have paid the dealer, you can walk away with the keys as the legal owner of the car.

While most car dealers allow thisbuy a car with cash, you usually have some other payment options. You can expect almost all car dealers to accept a check from your bank, a personal check, or a wire transfer from your bank account.

Advantages of paying cash for a car

There are numerous benefits to paying cash for a new car. Some of these benefits include:

• Consumes less money:When you buy a car with cash, you avoid loan interest and other borrowing costs.
• Have 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 make monthly payments when you buy a car with cash, like you would with a car loan or lease.
• Get discounts:Some car dealers will give you a discount if you pay cash for a vehicle. However, this varies per lender.

Disadvantages of paying cash for a car

While there are plenty of good reasons to pay cash for a new car, there are also some downsides. Here are some disadvantages of buying a car with cash:

• Fewer vehicle options:When you buy a vehicle outright, you're likely shopping on a budget. While this has benefits, it also means you are limited in the types of vehicles you can purchase.
• Depletion of liquidity reserves:Buying a car in cash is often a major expense. Paying for the car in advance can significantly deplete your savings.
• No dealer incentives:It's common for car dealers to offer incentives when you finance a vehicle with one of their loans. If you pay in cash, you cannot take advantage of these offers.
• No opportunity to build credit:Getting a car loan means taking on debt, but it can be beneficial for your credit score. Paying off loans on time can improve your credit, which isn't possible if you buy a car with cash.

How to buy a car with cash

The generalthe process of buying a caris quite complex. It involves budgeting, car shopping, negotiations, securing financing and sometimes a trip to your local DMV. Buying a car for cash is the same process until the sale 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, you need to start saving money first. While this may seem obvious, you will need to save a significant amount of money to purchase a vehicle outright. You are responsible for the entire cost, not only for partial payment, but also for some additional costs.

Think about the types of vehicles you are interested in and how much money you need to save to buy one. Then make a savings plan for yourself. Decide whether you want to save weekly, bimonthly or monthly. You can do a simple calculation to see how long it will take before you save the amount you need.

Find a car you like

The next step is to shop online or go to the dealer and find a model you like. Make sure you shop 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 luxury models.

Negotiate the final price

Once you find 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 have to be an expert trader. Make sure you support your offer with compelling facts.

For example, if you want to offer $5,000 less than the vehicle's MSRP, be prepared with information showing that the fair market value of the vehicle is slightly lower than what the seller is charging. If there is something mechanically wrong with the car, you can also include the estimated repair costs in your quote.

Prepare your payment

If you decide to buy a car with cash, you can pay in several ways. One option is to use physical cash, but this is not the only way. You can also receive a check from your bank, write a personal check, or initiate a wire transfer from your bank to the dealer's or seller's account.

Whichever option you choose, make sure you know the final amount of the transaction. The price of a vehicle is usually more than just the suggested retail price. Even if you pay in cash, you will have to pay other costs, such as dealer fees and VAT.

Buy the vehicle

The final step is to purchase the vehicle, make the payment and obtain the keys. One last thing to remember is that you must have car insurance to legally drive the car away.

Some car insurers automatically cover new vehicles for a short period before they need to be formally added to the policy. However, if your policy does not allow this, or you do not already have car insurance, you will need to purchase coverage and insure the vehicle before you can drive it home.

Should you buy a car with cash?

Buying a car with cash can be a good financial move. It helps you avoid unnecessary debt and you don't have to worry about paying monthly loans. It also forces you to buy a car that you can reasonably afford. When taking out a loan, it is easy to be tempted by more expensive cars, because the costs are split into smaller installments.

Despite the benefits of buying a car with cash, it's not the best option for everyone. Not only does it require a large amount of savings, but it can also drain your account quickly. You could 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 you buy a car with cash, take some time to consider the pros and cons and consider the best option for your financial situation.