Buying A New Car? 6 Reasons To Pay Cash Rather Than Financing Your Next Vehicle

Your car is a few years old and you are dreaming about a new vehicle…

If you’re considering its trade in value and trying to decide how much the monthly payment on your new car should be, chances are you’re moving a bit too fast.

Why? Because you really should be thinking about hanging onto the car you have — just long enough to save your money and pay for your next car with cash.



6 Reasons To Pay Cash For A Car:

#1 You don’t have to worry about qualifying for a new vehicle, nor do you have to release your credit information to anyone.

As stated by the Mighty Bargain Hunter: Cash is king!

You don’t have to wait for cash to get approved if you have it already!  The same goes for even more expensive purchases.  Another friend had a contract inked for a property near where we live.  While he was getting the financing together, someone swooped in and made a cash deal.  Ready sources of financing are good, but a suitcase full of bills trumps the best-laid plans.  Source


#2 You won’t have to make a monthly car payment — which means you can free up your budget a bit for savings, and emergency expenses.

For more great tips like this, check out The Most Important Reasons To Save Money.


#3 Paying for your car in cash will eliminate the need to worry about bills, late fees, and other payment issues later on.  According to Investopedia, you should just say no to credit because “the best way to treat yourself to something nice is to save up for it and buy it when you can truly afford it. The peace of mind that will come with not financing your purchase will be like treating yourself twice.”


#4 “The hidden costs of automobile loans aren’t apparent until you crunch some numbers,” according to the Geeky Weekly blog.

For example, see exactly how much money you would spend if you chose to finance you car, rather than paying cash. Plus, how much money you could have made if you invested that money instead.

The question asked is: “What would happen if we took every dollar we would be giving to a bank in interest and invested it in a Roth IRA (all contributions and earnings can be pulled out tax-free during retirement). $21,500 over 50 years is $430 a year, $36 a month. That’s money we’d normally be giving away so why not invest it instead.”



#5 The car buying process takes less time.  If you’ve ever financed a car, then you know that it can take 3 to 4 hours to get approved and sign all of the paperwork.  But, when you pay cash, the deal goes much faster.

When I was at a closing and the customer said, ‘this is a cash deal,’ I knew I would not make any money for the next hour.  For this reason, they get you out of there as soon as possible.  — a car dealer


#6 You don’t have to deal with the old “bait and switch“.

In the past few years, both I and several of my acquaintances have purchased and financed vehicles through car dealers.  About a week after the sale, we each received a phone call which said:  “The loan company wants us to re-write the loan for a higher interest rate.  You need to accept this new rate or return the car.”   (It was at this moment when I decided to never finance a car again.)

If you pay cash for your car, no one can call you and say, “You didn’t pay enough for the car; we decided to charge you more”.


Does It Always  Make Sense To Pay Cash For Cars?

There are those who argue against paying for your car in cash.

Paying cash may even make the actual vehicle cost you more! The reason for this is that car dealers make money when they handle the financing with the bank or with the manufacturer’s lenders like GMAC or Chrysler Credit. A dealer typically averages about $700 on every car he handles the financing on.”  Source

While this is very true, it’s no reason to pay extra for your car by financing it!  There are many other negotiating tactics you can use to buy a car besides financing it.

One thing’s for sure, if you do feel that financing is the only way for you to get the best deal, then try to pay off your loan immediately.


More About Car Buying & Paying With Cash

car-shopping.jpg On Paying For Cars With Cash…

9 Reasons To Say ‘No’ To Credit

Should I Pay Cash Or Finance My Car?

Confessions Of A Car Salesman

Used Car Negotiation

10 Common Auto Dealer Scams

Andrea Hermitt

Andrea Hermitt

I have been a certified tightwad since I became pregnant with my first child and decided to find a way to stay home with him. I enjoy sharing my experiences in my journey back to financial health and planning for a future -- which will include sending 2 kids to college and early retirement.

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  • Financial News

    I’m surprised that you did not mention the most important reason to pay cash for any big ticket item, “i got all the cards” negotiation.

    You can ask for 30%, or more, off the sticker price. No one is going to let a sale walk out the door, regardless of how much they are losing on the deal.

    • John

      What your saying is 30% below invoice price?

    • chuck

      your thinking hey flash some cash get 6000 dollars off retail price… no that doesnt work 5% maybe just for paying cash the saleman makes his commision that much sooner

  • Randall Sterling

    This is a false statement, I mean if you have stellar credit and get 0% or close APR then yeah. But for most people, this is an absolute false claim and financing would be the worst thing you can do. Most peoples credit will not permit them to get APR that low and you would pay way more than what you’re vehicle is worth after it’s all said and done.

  • Special_Ed

    If you’re doing it right, you make the deal before any discussion of financing, trade, etc. The few times I have purchased a new car, I have had a difficult time keeping the salesperson focused on the fact that I was only planning to discuss the price of the vehicle. The typical salesman likes to include what “payment” the customer wants, what he wants to trade, financing and other things that make it near impossible to figure out what you’re actually paying for the vehicle. Trust me, when that happens, the customer does not come out ahead.