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

  6. Linda says:

    I have about 30K to spend on a vehicle I am 63 and my husband 61 and paralyzed on the left side so ease of getting in and out for both him and a wheelchair are a primary factor. I’ve been looking at Honda CRV, we live in San Diego, how should we proceed?

    • Jerry says:

      Linda, good to hear from you. I would get him out to look at some vehicles to see what he can get in and out of the easiest. CRV is a great choice, I’d look at Toyota RAV4, and also Ford Escape and Chevy Equinox.

      All 4 are great and will give you good service, the question is his comfort, which unfortunately, i can’t answer.

      Once you decide which is best, feel free to holler back at you and I’ll try to help.

      Jerry Reynolds, President
      Car Pro Radio Network

  7. bennie williams says:

    Whay is a good cash offer for a2008bmw 530I im looking to buy used

    • Jerry says:

      Sorry, I need a lot more info that that, and I really don’t keep up with used cars values. I would look at comparable cars on http://www.autotrader.com to get a good feeling for the market in your area.

      Good luck.

      Jerry Reynolds, President
      Car Pro Radio Network

  8. Zee says:

    Planning on buying two cars with cash- one family SUV & a car for a college student.Need advice on how to make the smartest choice.

    • Jerry says:

      Shoot me an email at jerry@carproshow.com and tell me what you want, where you are located, and I’ll set everything up for you with my dealers closest to you. That’s the smartest and cheapest way to get them.

      Thanks for listening to the show.

      Jerry Reynolds, President
      Car Pro Radio Network

  9. Ricky says:

    I have 25,000 and want to buy an 2011 Ford F150 Harley Davidson truck can u tell me how to go about purchasing to get the best deal.

  10. Shon says:

    Hello Jerry,
    I just stumbled / Gooooogled across your website and have a question/situation similar to that of Zee’s. (The previous question in the comment section.)

    We are looking at buying two vehicles (his & hers), one a truck-for errands (yard of soil), etc. and the other an economy/gas mileage/small/safe car she’ll be comfortable driving – like our recently deceased ’94 Geo Metro, size wise, but newer. We would consider an electric car for her. If there are tax breaks/incentives involved.

    You seem to have an informative website. I would really appreciate further advice from you and look forward to hearing from you soon.

    Shon in WA State.

    • Jerry says:

      Good to hear from you. I hope you’ll join us for the show. I am not sure of the rules in Washington State on electric vehicles, my show doesn’t air there. I would strongly consider Chevy Volt since it has extended range.

      On trucks, I lean to Ford, they are very tough.

      I hope this helps you!

      Jerry Reynolds, President
      Car Pro Radio Network

  11. Maurice says:

    Jerry,

    I’m looking to buy a 2012-2014 Dodge Charger R/T or 2011 Chrysler 300 C. I planned on only having 20k cash but here in New Jersey the dealers seen to stick to there pricing. How would you reccommend I approach this issue. I have my choice of the black car on black wheels look but not sure if many are available in my area.

    • Jerry says:

      Good to hear from you. The used car market is very good right now and dealers can stand on their price. I would set up an alert on AutoTrader.com with the criteria you are looking for including price. I’d set it to 100 mile radius, if you find the right car, it would be worth the drive. Every time one comes on the market that fits your criteria, it will email you.

      Good luck!

      Jerry Reynolds, President
      Car Pro Radio Network

  12. Derek says:

    I intend to buy a 2014.5 Camry SE for about $21,500 before incentives. Should I go with the $1,500 cash back (and buy the car for $20,000 in cash), or take the $500 cash back and financing at 0% for 60 months? Thanks for your advice!

  13. Mike says:

    Hi,

    This is a very informative website that you running here. Congratulations.

    I am in the market for used car for my sister. We just went thru things and she has spotted a car she likes on a website. She has given me the money(cash) for the purchase.

    What would be a textbook way of negotiating the deal on this car with or without considering financing for this purchase. In my eyes, i would rather pay for the car and that would be the end of story.

    What would you suggest I go about this deal with the dealership. By the way, I think the car is a trade in since its a different make than the dealership sells.

    thanks for your help.

    • Jerry says:

      Good to hear from you. No two dealers price used cars the same way. Your best bet is to search other vehicles in the area to get a median price for similar cars. Once you have that, you can make an intelligent offer. Often, dealers put their best price online upfront and won’t move.

      Be sure you look at a vehicle history report.

      Thanks for listening to the show.

      Jerry Reynolds, President
      Car Pro Radio Network

  14. James says:

    Do these same principles apply when buying a used vehicle?

    • Jerry says:

      James, I am not quite sure what you mean. Shoot me an email from the website, I’ll be happy to answer you.

      Jerry Reynolds, President
      Car Pro Radio Network

  15. Amy C. says:

    I have a bit of a unique situation, that I am looking for some guidance on. I am in the market for a 2015 Nissan Rogue, and the build I want is really uncommon (currently only one in the county over 1000 miles from my home), so I am going to have to have to car ordered by the dealer directly from Nissan. I am ALSO going to be a cash buyer. I am not sure how to handle the process of convincing the dealer to order a car and then drop the bomb that I am cash buyer upon delivery. Any thoughts?

    • Jerry says:

      Amy, good to hear from you. I am happy to help! Email me and let me know which market you listen from, I’ll recommend a good Nissan dealer that will take care of you. This should be easy. Jerry@CarProShow.com.

      Thanks for listening!

      Jerry Reynolds, President
      Car Pro Radio Network

    • Jerry says:

      Submitted on 2014/10/09 at 9:43 am | In reply to Amy C..
      Amy, good to hear from you. I am happy to help! Email me and let me know which market you listen from, I’ll recommend a good Nissan dealer that will take care of you. This should be easy. Jerry@CarProShow.com.

      Thanks for listening!

      Jerry Reynolds, President
      Car Pro Radio Network

      • Amy C. says:

        Jerry,
        Thanks for the reply. I don’t live in one of your listening areas, so I don’t think you will have a dealer connection where I live. I was hoping for tips on strategy. Should I deal with hassle of getting the car ordered, then when the car arrives inform them I will be paying cash OR should I negotiate the sale price at the time I order the car? I am afraid if I say “cash buyer” before the car is on the lot, I won’t have a chance of getting them to order it.
        -Amy

  16. Mark says:

    Hey Jerry, I am looking at buying a Honda Accord Sport edition. Trying to get a 2014 model, late in the year with 2015 models becoming more available. Most dealers have their “internet price” around $22500. This one dealer who is a little far away, but not too bad, has an internet quote for $20500, way less than everyone else. What is good initial starting point for a price I should be looking for in the negotiation? I would also want to get a $400 remote starter, when should I mention getting that? Going to see a couple of dealers tomorrow. Thanks Mark

  17. Paul says:

    Hi Jerry,
    Am buying a car out of state and the dealer is requesting a wire instead of cashier’s or certified check. I made a down payment but haven’t checked out the car yet (only pics). Am concerned about paying upfront without first test driving the vehicle, plus the dealer increased the price on the website even though they state that won’t affect my purchase price. What do you suggest: wire funds first or go to dealer with a cashier’s check anyway?

    • Jerry says:

      I would never wire the money with seeing and driving the car. I would take the cashiers check and if you wish, you can wire a small deposit to hold the car, but that’s as far as I’d go! Good luck.

      Jerry Reynolds, President
      Car Pro Radio Network

  18. Dave says:

    Hey Jerry I stumbled on your website through a Google search. I was wondering if you can help me. My credit isn’t great actually it’s bad. I have $20,000 cash and a 2004 Lincoln aviator trade in (kbb value around $6500). I’m looking for a reliable suv for me and my family. The lincoln is great but since it’s a v8 it’s killing me in gas. I was interested in a kia sorento since I heard their warranty is unmatched. Also was looking at the Mitsubishi outlander sport & kia sportage. Preferably awd/4×4. I live in Philadelphia, PA. …zip code is 19136…any help would be greatly appreciated

    Dave

    • Jerry says:

      Dave, good to hear from you. I only have dealers in the markets my show airs in, so can’t help with a dealer referral. I think you are on the right track with Sorento, and I would consider Hyundai Santa Fe too, it has the same warranty. I think either of those would serve you well.

      Hopefully we’ll get to Philly before long!

      Jerry Reynolds, President
      Car Pro Radio Network

  19. Marilou says:

    HI Jerry,
    Just stumbled on to your vehicle commentary page & I too have the same kind of question re purchasing a new vehicle. My 1st experience was horrible & the thought of repeating the same nauseating experience is preventing me from visiting any dealership. I am interested in purchasing a new Honda AWD CRV EX. I live in the Morris County area of NJ. Also, is it a better deal to purchase a 2014 or 2015? Your valuable guidance & recommendations are greatly appreciated. Marilou

    • Jerry says:

      Good to hear from you I don’t have any dealers in your area, so I can’t be of much help BUT I would shop by Internet with the closest dealers near you. If you can find a 2014, you’ll save money for sure. Work them against each other until you get the best deal.

      GOOD LUCK.

      Jerry Reynolds, President
      Car Pro Radio Network

  20. Dorothy says:

    Hi Jerry,
    We are looking into buying a slightly used car in the Washington, D.C. area. I am wondering if my concern about the possible damage to a car driven on salted roads during the previous two winters is a legitimate concern.
    Thanks,
    Dorothy

    • Jerry says:

      I would not worry about the salt, today’s cars have a lot of corrosion protection, it’s nothing like it used to be.

      Good to hear from you!

      Jerry Reynolds, President
      Car Pro Radio Network

  21. Offthepink says:

    Pay in cash if you want…just know that the fbi considers that rare and suspicious behavior, and in several states may be using law enforcement to seize, with no due process or charges, vehicles paid for with “questionable” money. These days, nobody’s supposed to have that much cash on hand at one time.

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