Buying a car with cash

I know Clark recommends not disclosing to a car dealer that you’re paying for a car with cash until the last possible moment (When Do You Tell a Car Dealership You're Paying Cash?) but rather than try to resist the pressure couldn’t you just get a good deal by letting them finance the car and just pay it off immediately? Or are there prepayment penalties that guard against that strategy?

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It depends, I think things are a little more straightforward and open in a new-car transaction. When buying a used car it’s more of a heads-up game.

If it’s a new car you can ask about all the sundry charges before you get close to wrapping up the deal. I haven’t bought a used car for 20 years and that was at a US government auction for cash.

The last car I financed with a dealer was because they offered a $1K discount if I used their company financing. I got all the details and scrutinized the contact’s fine print BEFORE signing it. As per the loan agreement, I had to wait ninety days before I paid off the loan in full. After all that, the $1K discount turned out to be $750, still worth it to me.

My advice is, read the contract… before you sign it.

Ive always wanted to go to one of those…

I’ve only been to a couple of them, when I lived in Alaska. This one was an occasion where they were getting rid of a bunch of pickup trucks. I bought a ten-year-old Dodge PU with under 10K miles on it for $4,700 to use for a plow truck in 1995. I found out later that the FAA was getting rid of trucks with low mileage but hundreds of hours of idling time on them while keeping the occupants warm in the winter while standing by in airport operations activity. It was OK for plowing snow and didn’t have any problems except a little excessive oil consumption.

I have been in the fortunate position of using cash to purchase a car starting in 1972 and had an interesting and fortunate experience with my current 2019 car. I followed clark’s advice and contacted by email dealer’s up to several hours away. One dealership quoted a price $4000 less than the second lowest quote. My spouse and I drove 2 hours to the dealership and the manager indicated that the saleman had, in error, quoted the price for a new 2018 car but the dealership would honor the emailed quote. We moved on the the finance department and had no issues after we indicated that we were paying in cash.

Clark has mentioned in the past to watch for pre-payment gotchas. The dealer/bank may structure a loan such that paying it off over time has the same cost as paying it off in one jumbo payment after the ink has dried. In other words, the interest portion of the loan is not reduced by paying the loan off as soon as possible. The loan agreement has all the interest required to be paid for the multi-year loan no matter if you take the 5,6,7 whatever years to pay it off or if you buy the car in January, make a monthly payment in February and pay it off in March. For low interest rates, probably using the full loan term to pay off the car is better than lump summing a pay-off when the interest is not reduced thus. You can invest the money or keep for an emergency versus giving the many thousands of dollars to the bank in one shot. Reminds me of a certain radio show where they tell the callers to pay off a 2.5% mortgage since they have the hundreds of thousands of dollars to pay it off now versus telling them to keep the mortgage and invest the money into a mutual fund or Treasuries that pay north of 5%.

The article has a discussion of opportunity cost when using cash to purchase a vehicle rather than financing with for example a 5% loan for 4 years. The statement is made that “you may get significantly more return on your cash if you’re able to invest a good portion of it into a target retirement date fund or an ETF that tracks the S&P 500.” There should have been further discussion of the risks of investing over a 4-year period. It looks like target retirement funds had a negative return for the 4-year period from 2005-2008 due to the 35% decline in the value of target date funds in 2008. Also, as has been mentioned in other threads, the yield of retirement date funds held in taxable accounts is reduced by both income and capital gains taxes.

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The operative word in your first sentence is “MAY,” as in “may get”.

When you pay cash and do not carry debt you eliminate the “may” part of the equation and replace it with “will eliminate interest paid.”

I think if you consider the term “opportunity cost” in terms of competing investments and not debt vs investment you’ll find things have more certainty of outcomes and you’ll usually sleep better.

That attitude usually grows on you as you age in years. :slightly_smiling_face:

I bought my 2021 Toyota Venza with cash. (Sort of)
I had a $14k trade in. I financed the least amount to get $750 off.($7500) I paid $3500 in credit card that was paid off the next day. Cut a check for the rest.
They asked that I keep the loan open for at least 3 months so my first payment a week later was $7300. Made two more payments and the car was mine. In 2022, I did the same thing when I brought my son a car, only I used his credit because I didn’t want to be on the title of his car for liability reasons.

I bought our last 4 new cars for cash.

I get bids from 4 dealers and go with the lowest.

In the past I have told hem we are cash customers.

Based on Clark’s instructions I will not do that until we close the deal.

I may try buying on the internet next time.

I bought three cars on the Internet. Don’t recall which service I used, but it allowed me to pick dealers within 50 miles. This was the SF Bay Area so lots of dealers.

I found the best deal about 30 miles away.

While the approach of financing to secure a better deal and then paying off immediately seems tempting, it’s crucial to consider potential prepayment penalties. However, discussing payment options openly is advisable. As for car purchases, having a manual is essential for understanding your vehicle’s features and maintenance requirements.Websites like offer valuable resources, aiding in car ownership experiences and ensuring optimal vehicle care from day one.