Do You Pay Cash for Your Cars?

Bankrate notes that more people are paying cash when buying a new car:

Nearly 12 percent of all new car buyers are paying cash, up from about 8 percent in previous years.

We've paid cash for our new cars since we've been married (almost 16 years now.) When we started, we simply drove our current cars a bit longer than we wanted and saved our payments to buy newer (and less expensive cars.) Then, once we bought the new ones, we drove them for 10+ years (just recently getting rid of them) while saving for the next two. A few years ago, we bought two new cars within a six-month period and paid cash for both. Since then, we already have enough saved to replace one of our two vehicles when the time comes (which will be 3-4 years for my car, though my wife's car only has 15,000 miles on it after three years -- it will last a long, long time at this rate.)

The Bankrate piece says that because dealers are losing the extra profits they get from financing a car, they may tend to bargain harder with cash buyers. I haven't seen this at all. In fact, if you use my method for buying a new car, not only can you save a bundle, but having cash will make the transaction go all the smoother. And, if you come in at the right time of the month/year and get the right salesperson, having cash can potentially save you even more.

How about you? Do you pay cash for your new car purchases?

Comments

[beef]

Never paid all cash for my cars, but from my experience, you're already set on the cost of the car before they even know if you are paying with cash or borrowing. If it was a big deal though, buy the car through dealor financing and pay it off the next day....

[Kevin]

Never paid cash either. The first car I bought I wasn't in a position to (right out of college, no savings). The last car we bought we got a good interest rate - 5.49% - and decided to save the money instead.

Our money market savings interest rate is at or higher than the car loan, so I figure we are at least breaking even or close to it, plus we have that extra liquidity.

Maybe the next car we will pay cash for, but that probably won't be for another 5 years hopefully. I want to drive my car until it dies or something I really HAVE to have comes on the market.

[Debt-free!]

We've worked hard at and have become debt-free except for the house, so I'm definitely paying cash for vehicles. We're getting ready to buy a fully loaded Honda Odyssey -- but it's gently used (18000 miles) and we know the onwers, and are getting it for $5k less than trade-in value. They can't afford the payments, so we're paying it off and getting a deal. I doubt I'll ever buy from a dealer again.

[Blaine Moore]

I have never paid cash for a car, but I fully intend to pay cash for my next vehicle in 3 to 5 years. I bought my truck while I was in college, refinanced after graduating so that I wasn't spending a couple of dollars a day in interest, and had completely paid it off (ahead of schedule) before I bought my house.

I fully intend to have the cash available for when my truck needs replacing, which will hopefully be around the time that we start having kids and I need something a little easier to get the little ones in/out of.

[rdub98]

I've never paid cash for a car, but would love to be in a position to do so. Right now, I'm trying to reduce my debt before I think about another vehicle. If I can convince my wife that she doesn't need a new car every few years, it would be easier to accomplish. AAaaaiiiiiyyeeeeee!!!!!

[Todd]

I never bought a car (or even had one) until I was in my early 30s, at which time I paid cash for one (for my wife). A year later I bought another one (for myself) and paid cash. Both times I would not discuss the means of paying for the car until we had settled on the price. I didn't get the sense that the dealership really cared how we paid, though. The second time they let us drive it right off the lot with nothing but a personal check for the amount and our promise that the check wouldn't bounce.

Another great way to save money, which I did on my second car purchase, is to purchase a car that's about a year old with low mileage. You can save a bundle that way on depreciation and still get basically a new car under warranty.

[Chris]

My wife and I bought our first car (as a couple) in July. We paid in full with a check. The wife wanted to use the briefcase full of cash approach but I was too afraid. It took us a year and a half to save up the money. We set a limit as to how much we wanted to pay and we were able to bargain a few hundred dollars down from that amount. I highly recommend paying with cash.

[Lynnae @ Being Frugal]

We've always paid cash for our vehicles. We bought a used Toyota Sienna in January and paid with a check.

[Chris]

Out of the 5 cars I have purchased, I paid for 3 with cash and financed 2. I will probably never finance again and prefer to pay in cash, regardless of the interest rate they dangle. I just don't want the hassle of owing money to a bank and depending on them not to mess something up.

[Hawkmoon Nine]

Haven't bought a car with cash, yet. My wife has an Accord that should last another 5-7 years, and my 10 year old F-150 only has 70,000 miles on it, so it'll be around for hopefully another 10+ years. We have already started saving for our next car so that we can pay cash.

[Bronco]

I have paid cash for all cars for the past 15 years. Its hard to beat the guaranteed return.

[Toby]

It all depends on the financing. The last car I purchased was two years ago and I received 1.9% APR. Needless to say, I financed it. I'd be an idiot not to! I just wish I could get that rate for an extended period of time.

Opportunity cost can be high when you pay cash for a vehicle.

[Susanna a.k.a. Cheap Like Me]

We've paid cash for two (very old, cheap) cars and financed three cars.

We wound up buying our current primary car new because it's a popular model in this area (Subaru Forester) and the two-year-old models we wanted tended to have 50,000+ miles on them and cost less than $3,000 less than a new car. Also, with a used car, our interest rate would have been more than 5%; with new-car financing our rate is 1.9% and we know how the car is being maintained because we're doing it. Our intention is to pay this one off (about six months early) and save the payment amount to pay for our next car (hopefully in cash -- or at least have a really solid down payment). Then this car will move to #2 and we'll sell our beater.

[Anitra]

My husband bought our light truck with cash before we were married. His previous car unexpectedly died before he was done making payments on it, and he knew he couldn't afford to make payments on two car loans at once; so he bought a 3-year-old light truck for a few thousand dollars. The truck is now almost 8 years old, but it's still going strong.

My car (also used) was financed from a dealership, because I bought it shortly after our wedding, when our savings cushion was very small. I wanted a nicer car than I could buy for $2k, and I was willing to take on debt to do it. I probably overpaid for the car, but I'm still happy with my decision. We paid it off about a year early, just before we bought our house. :)

[Scott]

Just did a few months ago. Technically speaking we got a loan through the manufacturer because we got a special rebate but just financed the minimum amount and paid it off in the first payment. Great way to buy a vehicle. I was literally in the dealership for about 45 minutes total. Cash transaction made it much smoother.

[Minimum Wage]

I did buy a low-end new car once, at a good price. The car served my needs and wants very well, so I thought I got good value. Other than that, I've always paid cash - for clunkers.

[Minimum Wage]

Clever move, financing the minimum amount and paying it off with the first [payment to get the mfr deal.

I heard a credit union commercial for a loan - with a penalty if the loan is paid off within the first two years.

Don't you hate prepayment penalties?

[Meg]

My first car was a gift from my parents, but I bought the car I have now in cash. I was right out of college, so I didn't want to burden my monthly budget with a big car payment. Also, I knew I'd soon be getting a mortgage, and I wanted my DTI ratio to be as low as possible. I plan to always buy cars in cash unless interest rates happen to be very low AND I think my savings are better off remaining liquid (either because they're earning great returns or because I might need the money for some reason).

[RPS]

I have a bi-weekly payment plan that I started when I purchased a new car back in Oct 2006. Car payments go straight from my paycheck. My credit union at the time had 4.49% financing for 5 years. I took advantage of that. I asked about the 4-year loan and they told me interest rate would be the same. Therefore, I took the 5-year loan and decided that with every paycheck , I'd invest the difference between payment of 4-year loan and payment of 5-year loan into a decent mutual fund. e.g. if 4-year loan is $200 payment and 5-year is $150 payment, I invest $50 bi-weekly into a fund.

[Susan]

I don't have a vehicle but most of my life I have lived with new car payments. I now ride the bus (4 mi. from work) to my job and it is so stressLESS that I may never buy another car. But if I do, I hope to pay cash. What a nice thought that would be, to walk into a dealership and write a check for a new car. Wow! Hopefully the lack of convenience in which I am currently living will pay off and I will get to experience that.

[BradM]

My parents bought, the car I have now, for 0% interest. They could have paid cash for it but took the rebates and the interest rate.
A couple of years later my dad received a company car and had 4 cars for the 2 of them.
I took over the payments about 7 months ago and the car is still worth more than we owe on it.
Hopefully if all goes well, my wife and I will be able to pay cash for our next car.

[emanuel]

I finance my cars through my credit union and then pay off that loan with a credit card that has 0% lifetime balance transfer. (Thanks Discover!) I break the payments into a 36 month or 48 month payment plan and pay off the credit card accordingly. I've done this on my last two vehicles, both of which were used and under $10K.

[Skott]

Most people shop more carefully and find a better value when paying with cash than if they are paying with borrowed money.

[Teri]

I pay cash for cars - always have - and stay clear from the dealers. They do NOT like cash customers. We always buy used cars though. I have had dealers rather not sell us a car for cash at all and treat us like crap. (New cars may be another story. But there are a few places now I would never go buy a new car from. short-sighted idiots).

For a couple of my cars I financed for a few months. Our last car we went into the dealer with this intention. The difference was night and day. I paid off the loan the following month, but I actually had a decent experience at the dealer. They were willing to haggle on a "1 at this price car." I am considering financing next time like that for more bargaining power, if we go to the dealer. I read an article soon after that the average gain on a sale of a used car was like $500 or something and the dealers get their money from financing (& extended warranties). It just made sense with my experience.

p.S. I know a LOT of people who pay cash for cars but take home equity loans to do it (being out in Cali - land of equity). I bet that skews the numbers. That is really the norm out here. I was shocked when everyone I knew was claiming they paid cash for their cars, until I figured out how. Usually people think we are weirdos to go the cash route. So I was really surprised for a while. Not surprised when it turned out to be equity...

[Alex]

I just bought two new cars this month. Paid cash for one, financed the other. Another tip on car buying, Aug and Sept are great months to buy. Some of the deals are insane. We paid cash for one car because we kept making a car payment to ourselves after we owned our previous vehicles free and clear. I hadn't planned on buying a second one at the same time, but 1.9 for 48 months was too tough to pass up.

[Matt]

Remember that the dealer will report a sale for "cash" even when the car is actually debt-financed, if the debt is to anyone other than the dealer's or manufacturer's financing company. If you write a HELOC check to pay for a car, the dealer counts it as a cash sale. Which, to THEM, makes perfect sense, since they don't get the profit from servicing the debt, but it means this report doesn't say nearly as much about the state of the car market as it seems to.

I've only ever bought a car on credit (of either kind) once, and I greatly regret the experience. All my other bills, I was able to pay electronically, but the car payment had to be driven in to the finance company's office every month, so they could give me a new unlocking key for the security system. When I moved out of state, it was a nightmare to get the car re-plated. And in fact I had to leave it parked in my garage for three months because the plates expired while I was trying to work through the Kafkaesque process for obtaining a title so I could register it in the state I actually lived in...if I'd driven it I could have gone to prison, and if I'd even parked it on the street so our primary car could have the garage it would have been towed away -- and then I'd have had to pay per-day impound fees for every day until I could get it replated, plus towing fees, plus...*shudder*...it still gives me chills, thinking about the nightmares I had regarding that car after the move. Plus during those three months I still had to drive two hours each way every month just to keep making my payments in person.

That doesn't even get into the fact that my insurance cost a bloody FORTUNE because if I'd picked a reasonable (ie "HIGH") deductible, they'd have called the loan and reposessed the car.

Every car I bought before that was for cash. The car my fiancee bought after she moved in was bought for cash. (That's the one we've been driving ever since.) Now that we own a house with 68% equity, if we needed to borrow money for a car, we'd take it out of the HELOC instead...lower interest, no onerous insurance restrictions, easy to pay. What's not to love?

[Mike]

I have bought five cars so far (4 of them cash and one financed). It is wise to finance your car if you can get a really, really low rate. I got a 2.9% for 60 months. It was worth it because instead of paying it cash I was able to invest the money and earned a minimum of 8% in earnings. Although there is inflation that you have to take under consideration, it is worth it in most cases. In addition, it looks great on my credit report. Remember before paying cash for a car to run some numbers to see what would be the best affordable choice for you. At the same time, try to pay cash if you buy a used car, the interest rate is outrageous. I hope the following short list will help some future readers:
1) New or used car (used: cash / new: financed if less than 3%)
2) Talk to either your CPA or Financial advisor to determine whether it is worth investing these money instead. For example, Roth IRA, 401K, etc...

If all the above are confusing, asked your accountant. This is what I did, and he run the numbers for me.

Good luck

[Betsy]

No one seems to be addressing the downside of paying cash.... that you are sinking a large dollar amount into a depreciating item! If you have good credit and can get a decent interest rate, you are better off setting up a loan with automatic payment, and leaving the money you were going to buy the car with alone. The compounded interest it is making in even modest investments is more than the simple interest you pay on a car. Most truly wealthy people do not elect to put a large amount of cash, that could be making them money, into something that depriciates.

[Betsy]

Oh, and.... home equity? Why would someone use their home as a collateral for their car? Doesn't that seem a bit backwards? You'll take the equity from your home and watch it depriciate in a car? No thanks.

[Betsy]

No one seems to be addressing the downside of paying cash.... that you are sinking a large dollar amount into a depreciating item! If you have good credit and can get a decent interest rate, you are better off setting up a loan with automatic payment, and leaving the money you were going to buy the car with alone. The compounded interest it is making in even modest investments is more than the simple interest you pay on a car. Most truly wealthy people do not elect to put a large amount of cash, that could be making them money, into something that depreciates.