How to Buy a Car With Cash
12 Min Read | Published: August 5, 2024
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Purchasing a car with cash can offer some benefits, but it may not be right for everyone. See how to buy a car with cash, along with the pros and cons of doing so.
At-A-Glance
- Buying a car with cash helps you avoid monthly payments and interest, but you’ll want to weigh the benefits against downsides like the opportunity cost of the money you’ll spend and potentially missing out on dealer incentives.
- If you’d like to pay in cash, researching vehicle options early on can help you determine how much you’ll need to save.
- If you decide not to pay in cash, alternatives like bank financing, dealer financing, and personal loans may be worth considering.
For a digital-first generation, paying for anything with cash might feel foreign. However, buying a car with cash has some financial benefits. In this article, we’ll explore the upside to going the all-cash route for your car purchase and some alternatives to consider.
Steps to Buy a Cash With Cash
Buying a car in cash requires a series of steps, some of which can take years. So, it’s critical to understand the end-to-end process, which includes:
- Research Vehicle Options and Prices
Before you craft a savings strategy, you’ll want to research cars online and develop a savings goal. Consider all aspects of your dream vehicle, including its color, interior, and special features like a sunroof or heated seats. Getting clear on the type of car you want will get you close to the amount you’ll need to save to make your car dream a reality. - Start Saving
Now that you have a clear goal, it’s time to create a more granular savings plan. First, figure out how long until you want to make the purchase. Then, use that timeline and the amount you’ll need to save to create a monthly savings target.
For example, if you want to buy a car for $20,000 two years from now, you’ll need to save $833 monthly. If that seems steep for your budget, try changing your timeline so the monthly amount fits. Simply extending the buying timeframe from two to three years lowers this amount to $555, which may be more feasible.
There are several accounts to choose from to stow away money for a short-term savings goal like buying a car. Since you’ll need the money within the next few years, it may be best to choose a savings account instead of an investment account, which could carry more risk. A high-yield savings account (HYSA) is a great option to consider as it generally pays more interest than a traditional savings account.
- Find a Car
As your savings build and you reach the point where you’re within a month or two of reaching your goal, it’s time to get serious about finding the car that’s right for you. Begin to look online for listings and visit local dealers to test drive vehicles. When you find the car that fits your budget, it’s time to negotiate to get the best deal. - Negotiate
Car dealers are often skilled negotiators, so you’ll need to be prepared when you find the car you want. Keep in mind that price isn’t the only thing you can negotiate. You can also haggle with dealers on extended warranties, the cost of repairs, or the value of the vehicle you’re trading in. - Have the Car Checked
If you’re buying used, it’s wise to check the car’s history using a third-party tool or mechanic. Doing so will let you know where the vehicle has been and if it’s been in any accidents. If you have a mechanic you trust, work with the dealer to test drive the vehicle to the mechanic so they can give it a once over. - Get Your Payment Ready
Paying for a car in cash doesn’t literally mean handing over tens of thousands in $20 bills. A cashier’s check is a more common way to make a cash payment. You can purchase a cashier’s check for a nominal fee (typically around $8 to $15) at your local bank. In doing so, the bank will pull the amount from your account to make the payment. To get a cashier’s check, you’ll need your government-issued ID, the amount, and the payee’s name.1 - Get Insurance
If you traded in a car with insurance coverage, you’ll need to update your insurer with the information on your new vehicle. Timeframes vary by insurer, but often, you may have a grace period of seven to 30 days to update your coverage for the new car.2
However, if you’re car shopping for the first time, you’ll need to secure insurance before you drive the car off the lot. In this case, getting quotes from a few reputable insurers may make sense before going car shopping. That way, you can finalize the quote on the day of purchase and be on your way.
Pros and Cons of Buying a Car With Cash
While buying a car with cash can be a good option in some cases, other times obtaining financing could make the most sense. In this section we’ll look at the pros and cons of purchasing a vehicle with cash:
Pros and Cons of Buying a Car With Cash
| Pros | Cons |
|---|---|
| Avoid interest payments and debt | Limited vehicle selection |
| Own the vehicle outright | Miss out on financing deals |
| No monthly payments | Fewer dealer incentives |
| Stay within your budget | Opportunity cost of cash payment |
Pros of Buying a Car With Cash
There are several benefits of buying a car with cash, including:
- Avoidance of Interest Payments and Debt
The most obvious benefit of paying cash for a vehicle is that you’re paying in full, meaning there’s no interest on a loan or debt to manage. Depending on the price of the car you buy and the interest rates at the time of purchase, shelling out cash could save you hundreds or even thousands of dollars in interest. - Outright Ownership
When you finance a vehicle, the lender owns that vehicle until you’ve completed payments. So, while you’re driving the car around every day, it’s not technically “yours” until you’ve paid in full and received the title. However, when you buy in cash, you own the car and its title from day one. That means even if you fall on hard financial times, you’re not at risk of a lender repossessing your vehicle. - No Monthly Payment
If you have experience building a monthly budget, you know that fewer monthly expenses mean more money in your pocket. Saving a few hundred dollars each month by not having a car payment could make it possible to take another vacation each year or save for another large purchase, like a home. - You’ll Stay Within Your Budget
If you’ve saved $20,000 and that’s all you have to spend in cash, you’ll only consider cars that fit within the budget. However, if you’re willing to finance, you may push the limit and buy something slightly more expensive that fits within what you can afford monthly.
Cons of Buying a Car With Cash
Before you buy a car with cash, consider these potential negative implications.
- Fewer Options
Since your cash budget is finite and likely smaller than what you might agree to finance, you may have fewer options when it comes to cars. However, if you set up a proper savings plan and research cars at the outset of your car-buying journey, this should be less of a problem. - Missing Out on Financing Deals
Sometimes, dealers offer potential buyers a financing deal where you’ll pay 0% interest for a set period. By paying in cash, you could miss out on these deals. However, you tend to need a good credit score to buy a car with the best financing deals, so if you’re new to building credit or don’t have a strong credit history, paying in cash is a way to avoid the credit check entirely. - Fewer Chances for Dealer Incentives
Once you walk into a dealership, the salespeople want you to make a deal, and they may try to sweeten the pot by offering incentives, like cash rebates, lease deals, or low-rate financing. However, many dealer incentives are tied to financing, meaning you won’t qualify if you pay in cash. - Opportunity Cost
When you buy a car with cash, the value of that money is transferred into the vehicle, and you can no longer use it. If you instead decide to finance the car at a low interest rate and invest the money, it’s possible to earn more as a result.
For example, let’s say you plan to spend $20,000 on a new car, and you can pay in cash or finance it at 3%. If you also have access to a HYSA earning, for example, 4.25%, you could finance the car, put the money into savings, and make 1.25% more over time. Before you commit to a full cash payment, it’s wise to weigh the opportunity cost of the purchase to fully understand how much you stand to gain or lose.
Alternatives to Buying a Car With Cash
If you want to buy a car but aren’t confident about paying in cash, consider these alternatives instead.
- Financing Through a Bank
Bank financing is a good option for buyers with good credit since banks and credit unions tend to offer the most affordable interest rates. Before you head to the dealership, consider getting preapproval from your local bank or credit union. Having the guarantee of a competitive interest rate in hand as you shop for cars can be a good negotiation tactic if you decide to finance instead of paying in cash.3 - Financing Through the Dealership
Many car dealerships make money by marking up any financing offered in-house. So, there is an incentive to get you into a dealer financing contract instead of having you go through a bank or pay cash. However, keep in mind that sometimes dealers are able to offer incentive deals on their financing that may include 0% interest for a period.4 - Taking Out a Personal Loan
Another alternative to buying in cash is a personal loan. Unlike a secured car loan, which uses your car as collateral, a personal loan is unsecured, meaning it’s not tied to a physical possession. With an unsecured loan, you’ll need a higher credit score to qualify for better rates, but you may also avoid having to put a down payment on the vehicle.
Should You Buy a Car With Cash?
Whether or not you should buy a car with cash depends on your preferences and unique financial situation. If purchasing a car using cash would deplete your cash reserves, and there is a 0% financing opportunity on the table, you may decide to finance it instead. However, if your credit score is lower and you’re facing a high-interest loan you might not be able to afford, paying with cash might make more sense.
Frequently Asked Questions
It may be best to inform the dealership upfront that you’re paying in cash. Some of their offers may be contingent on financing, and if you’re paying all cash, those offers may not apply.
If you want to be debt-free and can stick to a strict budget, buying a car in cash may be a smarter option. However, if you qualify for favorable financing deals, it may make more financial sense to finance your ride and invest the money you would have paid in cash.
The Takeaway
Buying a car in cash is a fairly straightforward transaction, but the question of whether it makes sense to buy a car with cash depends solely on your financial situation. If you tend to be debt averse and don’t have a problem waiting a few years to buy, choosing a realistic savings goal and planning for an all-cash payment could make sense. However, if you need a car more quickly, you may want to consider alternatives like dealer financing, or using a personal loan.
1 “What is a cashier’s check? Definitions, uses, how to buy one, cost and alternatives,” Bankrate
2 “What is the new car insurance grace period?,” Bankrate
3 “Is it better to finance a car through a bank or dealership?,” Bankrate
4 “What dealer financing is and how it works,” Bankrate
Brooke Joly is a writer on a mission to unravel the mysteries of personal finance and make them accessible to the everyday reader. When she’s not behind the keyboard, you can find her enjoying the outdoors in Charleston, SC.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
How Do You Lease a Car and How Much Does Leasing Cost?
Learn more about car leasing, how it works, and what it means, as it can have a major impact on your credit report.
Should You Get a Personal Loan to Buy a Car?
You’re usually best off with an auto loan when you buy a car, but there are a handful of special situations where a personal loan may be a better bet.
What Credit Score Is Needed to Lease a Car?
There’s no minimum credit score needed to lease a car, but your credit history still matters. Having good credit can help you get approved with more favorable lease terms.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
Shop All American Express Credit Cards
