How to Buy a Car With Cash

Buying a car with cash means you don’t have to apply for credit or financing. Instead, find the car you want, take it for a test drive, and if you like it, pay for it outright using a debit card, credit card, check, or actual cash.

The benefit of this is that you own the car outright. Once you leave the lot, the car is yours, and you can choose to modify it however you see fit - make customizations, install add-ons, or even give it a fresh coat of paint whenever you want.

Is it smart to pay cash for a car?

Whether or not it's a smart idea depends a lot on your personal circumstances. For example, if you are in a good position financially and have regular income and savings, then buying a car with cash can be a smart decision.

Despite the high upfront cost, you actually end up saving in the long term, as you don’t have to pay interest on auto loans. Instead, pay with your own money for the total price of the car, and then as soon as you drive it away, it’s yours to do as you please.

Not everyone is in a position to buy a car outright with cash, and sometimes financing or auto loans are the only way they’ll be able to get a new vehicle. If you have a stable income, but limited savings, it isn’t recommended that you buy a car with cash, as it might stretch you in the long run.

Also, cars are not investments, as they depreciate in value over time, and the cost of running them is getting higher and higher. The bottom line is if you’re someone who has some savings and an average monthly income, finance your car. And if you can get preapproved, you could find a good deal with a lower rate of interest. Just note that it is important to calculate the interest you’ll have to pay when applying for a loan. The monthly cost might exceed your budget, and you could end up paying a lot more than the car is worth, especially if you have a bad credit score.

Pros and cons of buying a car with cash 

To help you decide whether buying a car with cash is for you, here are some pros and cons.

Buying a car with cash: Pros

• Buying a car with either cash, check, credit, or debit card means you own the car outright. It’s yours to do as you please.
• You’ll avoid paying interest on the car if you buy it with the above payment types, which in the long term, will save you a lot of money.
• You can often speed up the buying process, as you don’t need to wait for any loans to come in or financing deals to be created and set up.
• Not all dealers accept or offer financing, so if you’re a cash buyer, you’ll have more options to choose from.
• Some dealerships might even offer a substantial discount or other good offers if you are a cash buyer. As they’re getting all the money upfront, there is more incentive for them to give you a good deal.

Buying a car with cash: Cons

• Buying a car with cash will cost you significantly more upfront, so unless you earn well above the average national salary, you’ll need to save up for a long period in order to buy the car outright from the start.
• Buying a car is not an investment, it depreciates in value very quickly, so you’ll be spending a large chunk of money on an asset that will be worth around a third of its value after the first year or so.
• You won’t get the option to spread the cost. As much as financing will cost you more in the long run, spreading the cost can have multiple benefits. Regular payments will increase your credit score, and you can also budget better for unexpected events.
• Spending all that money on a car means you won’t have that money to invest elsewhere. If you are very well off, then this isn’t such an issue, but you miss out on trying to make a return on your investment when buying a new car outright.
• A lot of dealers will simply not accept large physical cash payments due to personal preference. Also, the bank may well flag the purchase or question the eligibility of the funds if you pay with physical cash.

How to buy a car with cash: 8 steps 

If you’ve weighed the pros and cons and decided that buying a car with cash is the best option for you, here’s how to do it: 

1. Set your budget

You might start getting tempted by cars outside of your price range when a salesperson starts trying to get a sale, so set a budget. Assess your personal finances, and remember, just because you have an amount saved for a car, does not mean you have to spend it all.

You also need to set aside some money to cover the vehicle taxes and insurance. And don’t spend all of your savings on a new car, and be prepared for unexpected life situations. 

2. Research

It’s easier going forward if you decide what car make and model you want before going to a dealership It’ll look like you’ve done your research, and they won’t try and push any surplus stock on you. There are a range of sites out there, like Autotrader or Edmunds, where you can compare car prices and gather all the information you need before going to a dealership.

3. Contact a few dealerships

It's wise to contact a few dealerships in advance to ensure they allow cash payments. When it comes to physical cash, many dealers will refuse this unless it’s a small amount. Also, you may not want to be walking around with several thousand dollars on you. Once you have found a dealer who’s happy to proceed, go visit them and have a look at your options if you haven’t decided on a make or model already.

4. Negotiate the price

Just because you’ve decided to pay cash does not mean you have to pay the full price you see. Dealerships love a cash buyer, as there is no need to arrange complex finance deals, and it's money straight into their pocket.

This puts you in a strong position to negotiate. You might decide to try and get them to lower the price of the car or maybe even throw in some add-ons you’d usually have to pay for. Whatever it is, if you’re paying for the car upfront, there is always usually some wiggle room.

5. Have your payment method ready

To save any embarrassment, make sure you have your chosen payment method ready to go. If you are using a card, tell your bank you plan to make a large payment to ensure they don’t block the transaction.

The easiest way is to pay via a cashier’s check, but if you’re buying from a private seller, consider using an escrow service to protect yourself. It is worth noting that if you are making a payment of over $10,000, federal law may require you to report the transaction..

6. Arrange insurance ahead of time

To make sure you can drive the car away as soon as you’ve paid, make sure you set up the insurance before you arrive. This is easier to do if you have preselected a make and model. Remember, there is no grace period when buying a car, even if your drive home is 5 minutes and you buy it outright with cash, you still have to get it insured before leaving the dealership.

7. Test drive

It’s always a good idea to take the car you want for a test drive before you complete the purchase. Make sure it's exactly what you need in terms of space, comfort, and style. Once you are fully satisfied with the car, you can then move on to the final stage and complete the purchase.

8. Complete the purchase

Before driving out of the lot, make sure the dealer gives you a bill of sale. You’ll also want the latest emissions certificate and the car’s title. This should be handled by the dealer/ If you are purchasing the car through a private seller, you will need to complete your own paperwork.

Will I get audited if I buy a car with cash?

No, you won’t get audited by the IRS if you buy a car with cash. But you may want to contact the bank or ask your accountant before making a purchase, as the bank could flag this payment and block it.

So, should you buy a car with cash?

If you are in good financial standing, with savings and regular household income, then buying a car with cash isn’t a bad idea. As long as you don’t expect it to be an asset, you’ll get a return further down the line.

For the average person, it makes more sense to spread the cost of a car through financing, and if you have a decent credit score, you could get a deal with relatively low interest. It really depends on your personal circumstances, and you should always be certain you can afford to buy a car outright before doing so, as unexpected bills might arise further down the line.

Final thoughts

You should now have a better understanding of what it means to buy a car with cash and whether it's a good idea for you. For some, spending that kind of money outright on a car isn’t a good idea, whether it's due to the large amount or the fact that they simply don’t want to.

If you are looking for a new vehicle and you don’t want to buy it with cash or even through financing, then consider a FINN car subscription. With a car subscription, you can get your hands on a large selection of vehicles at  6 to 12-month terms with no huge upfront payment or complex financing. Instead, pick the car you like, get approved in minutes online, and arrange for delivery straight to your doorstep. Browse available vehicles today.