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How to buy a car with cash
Most dealerships and private sellers prefer a cashier's check to cold, hard cash.
Buying a car with cash means you won’t have to pay interest and fees on a car loan. Plus, you’ll fully own the car when you drive it off the lot. But you’ll need to consider more than just the sticker price when determining the total cost of the car.
Follow these steps to get the best deal when buying a car with cash:
Step 1: Start saving up.
If you don’t already have the money on hand, start setting aside money from each paycheck for your new car. You might want to consider opening a high-interest savings account just for your car savings. You’ll collect interest on the money you deposit and won’t be as tempted to touch the funds.
Having trouble figuring out how much to save? Budgeting apps like Mint can help you figure out how much money you can afford to set aside and track your progress.
Step 2: Research cars.
If you don’t already have a specific car in mind, think about what you’ll need to use it for and go from there. Is it only you or do you need to drive your family around? Do you use it to get around town or are you interested in long trips?
Consider these questions to narrow down the type of car you’re looking for.
Also, weigh whether you want a used or new car. Used cars often cost less and lose value at a slower rate than new cars, but you’ll have fewer options to choose from and typically have a shorter warranty.
Step 3: Calculate the total cost.
Once you have a car in mind, research the how much you need to have saved up to avoid financing. Consider the following costs when buying a car with cash:
The cost of the car. Research the price of the car in your area on sites like autoTRADER.ca and Canadian Black Book to get a general idea of how much it will cost. Keep in mind you might not pay this exact amount — especially if you have good negotiation skills.
Sales tax. Visit your provincial or territorial service website to find out what the sales tax rate is in your area.
Registration and licensing fees. Also look to the provincial or territorial service office to find out how much you might pay to register and license your car. This includes the cost of a license plate and car title.
Documentation fee. If you’re buying from a dealership, they might charge you a fee for handling the licensing and registration paperwork. Some of these fees may be regulated by your province or territory.
Insurance. Car insurance coverage is mandatory if you want to own and drive a car in Canada.
Add all these costs together to come up with a goal for how much to save before you get started.
Step 4: Calculate your current car’s trade-in value.
If you already have a car, you can often trade it in at a dealership to reduce how much you have to pay out of pocket. You can get an estimate of how much your car is currently worth by visiting sites like Canadian Black Book and autoTRADER.ca. The car’s value is based on factors like its make, model, mileage and where you live.
You can subtract the trade-in value from the total cost of your new car if you plan on buying from a dealership.
Step 5: Negotiate with the dealer or private seller.
Once you’ve saved up enough money, visit the dealership or private seller to negotiate a deal on your new car.
Negotiating at a dealership
Keep the conversation around the price of the car, rather than financing. Avoid mentioning that you’re paying up front in cash. Dealers sometimes offer better deals to customers who pay with in-house financing because they can make money off the interest.
If they push you on financing, give a vague answer. Only tell them you’d like to pay in cash once it’s time to pay for the car.
Negotiating with a private seller
In this case, you can be up front about paying in cash since most private purchases are made in cash. But make sure you’ve done some research on the value of the car you’re interested in.
Familiarize yourself with the price, how fast it might depreciate and check it out for damage. Having this information can help make sure you’re getting a fair deal on your car.
Step 6: Pay for your car.
Once you’ve negotiated the price, it’s time to make the purchase. Buying your car with a cashier’s check is generally more secure than paying in actual cash — and a lot less of a hassle. Some dealerships don’t accept cash over a certain amount — and a cashier’s check gives you a record of the payment.
Traveling with a lot of cash can also pose a safety risk. The government may even choose to investigate large hard-cash purchases, requiring you to show a detailed history of where you got the money.
You can get a cashier’s check by visiting your bank. Most charge a small fee, typically around $10 or $15. These can take a couple of days to process. If you want to pay your dealership faster, consider a wire transfer. These are typically more expensive, but can get the money to the seller the next day.
4 tips for buying a car with cash
Make the most of your loan-free car-buying experience with these pointers:
Arm yourself with knowledge. The more you know about the car you’re interested in buying, the more likely you are to negotiate a better deal. Do some research the night before to make sure your numbers are up to date.
Ask about rebates. Many dealerships offer discounts on financing — which are no good to you as a cash buyer. Instead, ask about rebates and other discounts available when you’re negotiating.
Don’t mention trade-ins right away. Dealerships often have limits to how low they’re willing to go on the price of a car. Mention the trade-in up front and they might factor that into to the total price, giving you a worse deal.
Avoid paying with cold, hard cash. It can be dangerous to ride around with that much money, difficult to withdraw from the bank and you won’t have a detailed transaction record.
Should I buy a car with cash or get an auto loan?
On one hand, financing a car and making your payments on time can improve your credit score. It also means you don’t have to pay as much up front and can split the cost of your vehicle up over smaller, more manageable payments. Additionally, you could potentially save if you invest the money you would have spent on the car, since investments earn interest.
But on the other hand, you can save a lot of interest fees if you buy a car outright with cash. Plus, the money you would’ve spent on car loan payments can go towards other things like car repairs, gas or insurance.
You won’t increase your debt load
You’ll pay less for your car (besides saving on interest, you may be able to land a special deal for paying the full cost of your car upfront)
Can dedicate more room in your monthly budget for other expenses besides a car loan
Avoid the temptation of “buy now, pay later” and the possibility of getting stuck in a cycle of debt
Requires you to think responsibly about how you want to spend your hard-earned money
Costs more upfront
Won’t improve your credit score, so you can qualify for other credit products like personal loans, mortgages, credit cards or other car loans.
Harder to afford vehicle modifications and upgrades, because you have to pay for it right away. With a loan, you could spread this cost out over time.
Some experts say you should spend about 1/3 of your income on all forms of debt repayment, including car loans. Assuming you have no other debt and make $5,500 a month, this means that you could spend up to $1,833 on car loan repayments. But if you have a $1,100 mortgage payment and $60 credit card payment to pay each month, the amount goes down to $673.
Other experts advocate the 20/4/10 rule where you make a 20% down payment on your car, pay back your loan in 4 years or less and not let your car payments exceed 10% of your income.
Frequently asked questions about buying a car with cash
It depends on how much it costs. Generally, used cars cost less, so it might be easier to afford the total cost than buying a new car. If you’re not sure which is right for you, check out our guide to new versus used cars.
It depends on how much the car costs and the seller’s policies. But your car will likely cost more than your debit card allows you to spend in one day, which is why cashier’s checks are a more common choice.
It depends on the seller. Generally, dealerships and some private sellers don’t accept personal cheques for large amounts — there’s too much of a risk it’ll bounce. A money order is usually a safer choice for all parties.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 950 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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