How to Buy a Car with Cash: Everything You Need to Know

Financing a vehicle with an auto loan is a common option for car shoppers. But if you want to avoid debt, or you’ve been saving up for a new car, you might decide to pay in cash instead.

Before you buy a car with cash, there are some things you should know. Even if you have the money available, purchasing a car in cash isn’t always the best option. Here are some things to keep in mind if you’re thinking about buying a new or used car in cash.

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What Does it Mean to Buy a Car with Cash?

If you’re shopping for vehicles, you’ve probably heard the term “paying in cash.” But what does that really mean?

Paying “cash” for a car doesn’t necessarily mean you’re using actual dollar bills. Rather, it means you’re paying for the full cost of the vehicle upfront. After you pay the dealer, you get to walk away with the keys as the car’s legal owner.

While most car dealerships will allow you to buy a car with cash, you usually have a few other payment options. You can expect almost all car dealerships to accept a cashier’s check issued from your bank, a personal check, or a wire transfer from your bank account.

Advantages of Paying Cash for a Car

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

Spending less money: When you purchase a car in cash, you avoid paying interest on a loan and other lender fees.Having to make wise decisions: If you pay cash for a car, you probably have a strict budget. You won’t be tempted to purchase a more expensive car than you can’t afford. No monthly payment: You won’t have monthly payments when you buy a car in cash, like you do with an auto loan or lease.Getting discounts: Some car dealerships will give you a discount when you pay for a vehicle in cash. However, this varies from lender to lender.

Disadvantages of Paying Cash for a Car

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

Fewer vehicle options: When you purchase a vehicle outright, you will probably be shopping on a limited budget. While that has advantages, it also means you’ll be limited in the types of vehicles you can purchase. Depleting cash reserves: Buying a car with cash is often a big expense. When you pay for the car upfront, you might be depleting your savings quite significantly. No dealer incentives: It’s common for car dealerships to offer incentives when you finance a vehicle with one of their loans. If you pay in cash, you won’t get to take advantage of these offers. No opportunity to build credit: Getting an auto loan means you’re taking on debt, but it can be beneficial for your credit score. Making on-time loan payments can improve your credit, which you can’t do if you purchase a car in cash.

How to Purchase a Car with Cash

The general process of purchasing a car is fairly complex. It involves budgeting, car shopping, negotiating, securing financing, and sometimes, taking a trip to your local DMV. Purchasing a car with cash is the same process, up until the sales transaction takes place.

Here’s a quick overview of how to buy a car with cash:

Budget and Save Money

If you want to purchase a car with cash, the first thing you should do is start saving money. While this seems obvious, you will need to save up a significant amount of money to purchase a vehicle outright. You’ll be responsible for the full cost, not just a partial down payment, as well as some added fees.

Think about what types of vehicles you’re interested in, and how much money you will need to save to purchase one. Then, create a savings schedule for yourself. Decide if you will save weekly, bi-monthly, or monthly. You can do some simple math to see how long it will take you to save the amount you need.

Find a Car You Like

The next step is to car shop online or head to the dealership and find a model you like. Make sure to shop with your budget in mind. You can even ask the salesperson to only show you vehicles that fit into your price range to avoid getting tempted by higher-end models.

Negotiate the Final Price

Once you’ve found 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 need to be an expert negotiator. Just make sure to back up your offer with compelling facts.

For example, if you want to offer $5,000 less than the vehicle’s MSRP, come prepared with information indicating that the vehicle’s fair market value is slightly lower than what the seller is charging. If there’s anything mechanically wrong with the car, you can factor the estimated repair costs into your offer, as well.

Get Your Payment Ready

If you decide to purchase a car with cash, there’s a few different ways you can pay. One option is to use physical cash, but that’s not the only way. You can also get a cashier’s check from your bank, write a personal check, or initiate a wire transfer from your bank to the dealer or seller’s account.

Whatever option you choose, make sure you know the final amount of the transaction. The cost of a vehicle is usually more than just the MSRP. Even if you’re paying in cash, you will need to pay other fees, like a dealer fee and sales tax.

Purchase the Vehicle

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

Some car insurance companies automatically cover new vehicles for a short period of time before they must be formally added to the policy. However, if your policy doesn’t allow this, or if you don’t already have car insurance, you must purchase coverage and insure the vehicle before you can drive it home

Should You Purchase a Car with Cash?

Buying a car in cash can be a good financial move. It helps you avoid unnecessary debt, and you don’t have to worry about making monthly loan payments. It also forces you to purchase a car you can reasonably afford. When you take out a loan, it’s easy to get tempted by more expensive vehicles because the cost is broken down into smaller installments.

Despite the advantages of purchasing 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 quickly deplete your account. You might also miss out on financing deals, like 0 percent financing for 36-months, which can make the cost of borrowing money pretty cheap.

Before buying a car in cash, take some time to review the pros and cons, and consider the best option for your financial situation.

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.