Will You Get a Better Deal Paying Cash For Your Car? Car Pro Commentary

02 Sep

New Car Lot 09_02_13People ask me all the time on the radio “will I get a better price by paying cash for my next car?” While there was a time when the answer was yes, today the opposite is actually true. You read that right, you can often get a better price by financing the car with the dealership you are purchasing from.
Thinking back to my years in the retail auto industry, I ran across a lot of people who wanted to throw around the fact that they were paying cash, and were determined that they should get some sort of special deal because of that. The truth was, as a car dealer, I didn’t really care how we got our money. Whether cash, credit union, bank, or one of our finance sources, we got our money quickly in most cases, so waving a blank check in front of me did not carry any weight when it came to pricing my vehicle.
A few years ago, and even more so today, many of the captive finance sources (Ford Credit, Ally Financial, Toyota Financial Services, etc.) began offering extra rebates for financing with them. I’ve seen those amounts as large as $1500. Diehard cash buyers are often put off by this and get angry with their car dealer, but the truth is, the dealer cannot control this. There is an easy way to get around it, however.
The finance companies offering the rebates are enticing you to finance with them, of course to make a return through interest rates. They are hoping that you will decide to keep the loan so they can make money. In these cases, the savvy buyer will proceed with financing the car, get benefit of the financing rebate, and simply pay the car off in full before the first payment is due. You get full benefit of the extra rebate and get to write a smaller check. The finance companies know a lot of people are going to do this and they are fine with it.
One important note: dealers like to tell you to make the first three payments before you pay the car off. Dealers are paid a flat fee in many cases, it’s normally a couple of hundred dollars. That flat fee is charged back to them if the consumer pays off their car before three payments are made, but by law, you can pay it off at any time.
Getting a better price in the case of paying cash even when there are no additional rebates, just isn’t true, not any more at least. The last figure I saw nationwide showed that dealers average $700 in finance income from every car they sell. These profits are derived from the sale of extended warranties, credit life insurance, gap insurance, etc.
Going back to my days as a dealership owner, when we were on a tight deal, meaning we were at the point of parting ways with the customer and having a no-sale, I would ask how the customer was paying for the car. If they were financing with us, I would accept the deal in hopes of making a profit on a warranty or some other product. If they were paying cash, I would likely pass on the deal. So as you can see, paying cash was a detriment to the consumer instead of a benefit.
Paying cash will reduce your time spent in a dealership, and you can avoid interest charges if the car you are buying does not offer 0% APR financing. However, paying cash will not necessarily guarantee you a better price, and in fact, it might cause you to pay a higher price.

Comments

  1. Darryl says:

    Point well taken. This is how it SHOULD be! So, I ask the question, why does the “modern” salesman/salesperson still ask, early in the meeting, “Will you be financing this car?” It happens all the time.

    • Jerry says:

      Thanks for listening to the show!

      Dealers always want to show you the lowest price, so if there are rebates involved with financing, they want to know so they can deduct the rebate before showing you the price.

      Jerry Reynolds “The Car Pro”
      President, Car Pro Radio Networks

  2. JOwen says:

    If you are charged a higher price to finance a vehicle than the sale price if you finance, it is illegal under most state finance codes and Federal Truth in Lending Act. The price in a cash deal by which the sale price exceeds the price in a finance transaction is actually undisclosed finance charge. Dealers that do this are not reputable and you should not deal with them.

    • Jerry says:

      That is incorrect James, and not what I said. The price of the car does not change, the amount of rebates to be deducted from that price does change in many cases depending on whether you finance or not. If a finance company wants to give you money for financing with them, there is nothing illegal about it.

      Jerry Reynolds “The Car Pro”
      President, Car Pro Radio Networks

  3. John says:

    Another point: I bought my Honda in December. I did not want to finance since I don’t have debt (am retired), but Honda offered me 0.9% financing, no additional fees, and a $500 discount. 0.9% money? Since I had the cash, I took the minimum amount to finance ($7500) and put the cash into a dividend-paying ETF averaging 2.8% dividend, and have already got more than the financing cost back in dividends. I still have the $7500, plus accumulated dividends, and can sell at anytime to pay off the loan. Even putting the cash in a CD would likely pay me more in return than the interest cost. Making my money work for me, and using your certificate works for me!

  4. Loraine says:

    What if they tell me a bottom price, and then I tell them that I will be paying cash. Can they take back the offer?

    • Jerry says:

      Yes, unless you’ve done all the paperwork etc. Sounds like a case of the dealer using a rebate that requires you to finance with them. if that is the case, go ahead and finance and pay it off within 30 days and there is no interest.

      Thanks for listening to the show.

      Jerry Reynolds, President
      Car Pro Radio Network

  5. William Downs says:

    I have 25k in cash to play with to buy a car how’ll should go about doing it

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