How to Buy a Car for Cash - Dealer or Private Sale

Updated: Aug 19

Buying "Outright" and Avoiding Loans for Your Next Purchase



While there are many advantages to financing a vehicle some people prefer not to have a monthly payment or are interested in avoiding interest and financing fees. Buying a car for cash may be less hassle but is it worth it? If you are considering paying cash for your next vehicle, here is everything you need to know.


Paying upfront for your next vehicle is not always the best option. For example, Say you want to buy a car for $20,000 cash. The dealer approves you to finance the vehicle for 60 months at 2.9% interest. You can put $5,000 down and leave $15,000 in the bank while building your credit, all for a total interest cost of around $1,000.


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However, depending on your budget and your credit history, there can be many advantages to a cash deal.




Pros and Cons

Pros

Cons

Negotiation Leverage

Lose Cash Reserves

No Car Payment

No Financing Deals

Lower Cost

Fewer Discounts

Flexibility

Doesn't Build Credit

Depending on your financial situation it may be smart to buy your next vehicle outright by paying cash rather than financing. There are many advantages to paying for a car in full however, it is not always the better option, and it is important to consider all the factors before making your car-buying decision. Though fees and interest sound bad depending on your credit and the offers available it may be worth keeping that money in the bank.






Advantages of Paying Cash (Pro)


Price Leverage- While you may not receive any financing deals or discounts paying cash gives you leverage while negotiating. Because you are paying out of pocket and are not relying on the dealer or lender for approval you have more flexibility in when you can walk away from the table.


No Car Payment - The biggest advantage of buying a car outright is that you will not have to take on a recurring monthly car payment.


No Interest & Fees - Along with your monthly payment you will likely have to pay an interest rate along with financing fees when taking out a loan for a vehicle.


Flexibility - Paying your car off can help you stay ahead of depreciation and inflation. Owning your vehicle will allow you to be more flexible in choosing when to purchase your next car by preventing you from carrying negative equity or becoming "upside down" in your loan.


Disadvantages of Cash Purchase (Con)


Lower Cash Reserve - Financing a vehicle allows you to keep more money and have control over your savings.


No Financing Deals - Financing a vehicle can often include special savings and promotions


Fewer Discounts - Dealers may be less inclined to discount vehicles where they are not making any money on financing or "the back end"


Doesn't Build Credit - While paying your car off right away may offer more flexibility but it will not build positive credit history like a monthly payment. Building your credit score can improve your finances and allow you to make larger purchases and access cheaper financing in the future.


How to Buy a Car for Cash



  1. Save & Budget The first step to buying a car outright is knowing what you can afford. A vehicle can be a huge purchase and it is important to budget for it so as to not deplete your savings and avoid any financial discomfort in the future

  2. Research - Now that you know what you can afford it's time to select your vehicle. It's important to consider all your needs such as size and seating. We recommend searching value assessment sites like KBB to make sure you are getting a fair deal.

  3. Negotiate- By tradition, all prices are negotiable in the car game. Rather than focusing on winning, keep your budget and the maximum you are willing to pay and don't stray from the path unless absolutely necessary, With the increased access to information, it is quite rare to grossly overpay for a car. Be upfront and honest but firm about what your budget is and what you are willing to pay

  4. Drive and Inspect- Never buy a car without spending a decent amount of time driving it. If you are buying a car privately be sure to have it checked out by a mechanic you trust and request any maintenance required in writing.

  5. Final Steps - Inform your insurance company of your intent to buy a vehicle to learn your next steps. Depending on the title transfer laws of your state you may have to utilize a bank or notary when buying a car privately.


How to Finance a Car


If you decide that buying a car outright is not right for you, consider financing your next vehicle with an installment loan. The cost of your loan will depend on your credit history. If you have poor or limited credit you can find special financing programs online such as Auto Credit Express. Learn more about financing a car with bad credit here.



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