Paying cash or financing your car purchase both have advantages and disadvantages, especially if you're purchasing from a dealership. Paying cash doesn't always save you the most money, nor is it a reason for a lower negotiated price with a dealership. Consider the benefits of each option to determine which can earn you the most money or deepest discounts.
Dealership Discounts
New car manufacturers constantly offer incentives for financing, such as low interest rates or automatic discounts. To qualify for some of the price reductions you see advertised, you might have to finance. If so, ask your dealer if the lender charges a prepayment penalty fee. If not, you might find that financing and paying off the loan shortly after saves you more money than paying cash. As for negotiating a better price, dealerships increase profit when arranging financing for its buyers. Paying cash isn't a reason to reduce the selling price of a vehicle, as the dealer loses extra profit.
Holding Up a Sale
Having cash on hand allows for a speedy purchase process. If you have to apply for financing after you find the car you want or transfer money around to obtain your payment, you might lose the vehicle you want to purchase. Sellers are often looking to make a sale quickly. To prevent losing your car purchase opportunity, apply for a preapproval before you shop. If paying cash, create a budget and transfer your money around before you shop. Waiting for a cash transfer or preapproval can take up to a week or more.
Savings and Interest
If your money is in a savings account that earns interest, paying cash might cost you more money than financing, especially if the manufacturer or lender offers a low rate. To determine which option saves you the most money, determine the interest you'll earn over time if keeping your money in an interest-bearing account. Use an auto loan calculator to determine your total loan pay back amount with interest. If discounts or zero-percent interest applies to your loan, you're probably better off keeping your cash in a savings account.
Accpeting Cash or Payments as a Seller
If you're selling your car, your buyer might ask to make payments. If so, don't transfer any title transfer paperwork over to the buyer until he pays for the vehicle in full. Create a car payment contract and require a deposit. If you're waiting for a buyer to make payments, you might lose out on the opportunity to sell your vehicle to another person. Discuss whether the buyer's deposit is refundable before allowing him to make payments. Be clear on when payment is due and state the terms of the sale in your contract. If you don't know the person buying your car, consider accepting only payment in full to avoid non-payment issues.
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