Can You Buy a Car with Cash? Everything You Need to Know

If you’re in the market for a new vehicle, there are a few ways you can complete the transaction. You can finance the car with a loan, lease a vehicle for a few years, or buy the vehicle in cash.

If you can afford to purchase a car outright, it might be the best option. You won’t have to make monthly payments or pay any interest. But just because you have the cash to buy a car in full doesn’t mean you necessarily should.

Can You Buy a Car with Cash?

Yes, car dealerships allow you to buy a car in cash. When we use the term “cash,” it includes two scenarios: you purchase the car with physical cash withdrawn from an ATM, or you purchase the car outright. Even if you buy a car using a credit card, personal check, or cashier’s check, it’s still considered paying for the car “in cash.”

Pros of Buying a Car with Cash

If you have enough money saved up to purchase a car outright, it’s not a bad option. Here are some of the advantages of buying a car in full.

Avoid Interest Payments

When you buy a car in full, you don’t need to finance any portion of it. That means you don’t have to pay interest, which is the cost of borrowing money.

Live Without Debt

When you finance a car with an auto loan, you have debt, even if you can comfortably afford the monthly payment. When you buy a car in cash, you don’t owe money to anyone else.

Sell the Car Whenever You Want

If you buy your car in cash, you have full ownership. That means you have complete control over when you sell the car, and how much you sell it for. For comparison, if you’re still paying off a car loan when you want to sell your vehicle, you have to pay off the loan first and work with your lender to complete the process.

Cons of Buying a Car with Cash

Buying a car with cash can be an attractive option, but many people still choose to finance a car instead. Here are some of the potential disadvantages of paying for a car in cash.

You Might Pay More Than the Sticker Price

Paying for a car with cash can sometimes give you the upper hand in a negotiation, but it isn’t always the case. If a dealer knows you’re paying in cash, they might decide to charge you more. Some dealers would rather have you finance the car so they can make commission profits on the loan. For this reason, you may want to keep the fact that you’re paying in cash a secret until the last possible minute.

You Won’t Have the Opportunity to Build Your Credit

Financing a car with a loan gives you the chance to build your credit. By making loan payments every month, you show that you’re a responsible borrower, which improves your credit score. Building credit now also makes you more creditworthy to lenders in the future.

You’ll Lose a Large Reserve of Cash All at Once

When paying for a car with cash, whether that car is $5,000 or $40,000, you’re losing a significant amount of money that could’ve been spent elsewhere. Depending on your financial situation, that money might be better allocated elsewhere or invested.

You May Have a Smaller Selection of Vehicles to Choose From

Most people have a limited amount of cash saved up to purchase a vehicle, which determines what types of cars they can buy. For example, if you’ve saved $10,000 to buy a car in cash, your only option may be a used car. If you’ve saved $25,000, your only option might be a sedan. If you were to finance a car, you would have a much bigger selection of cars to pick from.

Tips for Buying a Car with Cash

Before you buy a car in cash, here are some things to keep in mind.

Do Your Homework

Buying a car is a big purchase, whether you buy it in cash or take out a loan. Make sure to compare all of your car buying options before moving forward.

Find out the financing rates, discounts, deals, and incentives available to you if you choose to finance the vehicle. Then, calculate and compare it with the cost of buying the car in cash. Remember that the original price and interest rates aren’t the only components that make up the cost of a car. You also have to factor in fees, taxes, car insurance, and potential maintenance and repair costs.

Wait to Disclose That You’re Buying in Cash

When you’re car shopping, it’s common for salespeople to ask how you’re planning to buy the car. In this situation, it can be beneficial not to tell the salesperson that you want to use cash. Instead, politely let them know that you’re waiting to hear about all your options before making that decision. Telling the dealer that you’re paying in cash early on could give them time to increase the car’s price.

Plan Your Budget

Buying a car with cash is a big decision, and it will probably have a big impact on your bank account. Before you choose this option, it’s a good idea to make a budget. Look at your income and expenses, and see how much money is leftover to put towards a vehicle. Determine if, after buying the car in cash, you could still afford all your everyday bills and future costs.

Should You Buy a Car with Cash?

Now that you understand the pros and cons of buying a car with cash, you might be wondering whether this is the best option when purchasing a vehicle. The short answer is, it depends. Every driver is in a different financial situation.

If you can comfortably afford to buy a car in cash, you’ll avoid paying loan interest, which can be expensive. You’ll also own the car outright, which means you can sell the car whenever you want. However, financing a car isn’t a bad choice, especially if you can get a low- or no-interest-rate deal. You’ll keep more money in the bank, and you’ll pay very little (or nothing) to pay the car off over time.

No matter which option you choose, make sure it’s the right choice for your bank account. Weigh the pros and cons of buying a car in cash, and take a look at your budget to see what makes the most sense. Paying for a car in full is never worth it if it’s going to cause you financial stress.

Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.