How to Pay Cash for a Car
Paying cash for your next car may seem impossible, but with a little budgeting, research, and cashier’s check or wire transfer, you can make it simple.
Written by Cameron Thiessen
Reviewed by Georgina Grant
Table of Contents
- How to buy a new car with cash
- How to buy a used car with cash
- Pros of paying cash for a car
- Cons of paying cash for a car
- FAQs
Load full table of contents
If you want to pay cash for your next car, it’s important to properly budget for the purchase and thoroughly research your options. You’ll also need to get a cashier’s check if you cannot pay for the vehicle electronically.
- Set a budget, research options, and set up an electronic payment or get a cashier’s check or money order.
- When buying a used car with cash, expect more paperwork, have the car inspected, and test drive it before purchasing.
- Paying cash can save on interest and lender fees, but it won’t help build credit and it could deplete your savings.
- Dealerships may offer special incentives for financing a car, making a combination of cash and financing a viable option for some.
- Set a budget, research options, and set up an electronic payment or get a cashier’s check or money order.
- When buying a used car with cash, expect more paperwork, have the car inspected, and test drive it before purchasing.
- Paying cash can save on interest and lender fees, but it won’t help build credit and it could deplete your savings.
- Dealerships may offer special incentives for financing a car, making a combination of cash and financing a viable option for some.
How to buy a new car with cash
Buying a brand-new vehicle
with cash upfront isn’t an option for most car buyers. But if your financial situation sees you with enough cash to do it, here are some tips for making the process easier:Set a budget and have the cash ready: Set a clear, realistic budget for your new vehicle purchase, and don’t forget to account for the cost of taxes. It’s also a good idea to have an emergency fund set aside, just in case there are unexpected dealership fees or added features you just can’t do without.
Pay by electronic transaction or cashier’s check: You may not know the exact price of your new car until you finalize the negotiation, so make sure you have more than enough money in your account before heading to the dealership. If you’re unsure how your bank handles large transactions like car purchases, contact your bank to ask for advice.
Do your research: To prepare for negotiating the price of the car, figure out the car you want, research its sticker price (MSRP) and average value, and learn how pricing varies between the various trims and option packages. If you already have a vehicle, you can consider
trading in your car
to reduce the amount of cash you’ll have to pay for the new car. Kelley Blue Book
and Edmunds are great tools for determining the fair market value of your dream car and the trade-in value of your current car. Negotiate the final price before telling the salesperson you’re a cash buyer: Try to negotiate the best possible price for your new car before announcing your intention to pay cash. This will give you greater bargaining power and help you settle on an even better final price without so much haggling.
Be prepared for paperwork: If the cash purchase price of your new vehicle is greater than $10,000—and it probably will be—you’ll need to file an Internal Revenue Services Form 8300.
How to buy a used car with cash
Paying cash for a used car is sometimes the simplest—and sometimes only—method when you’re dealing with a private seller. You can use some of the tips listed above when purchasing a used car from a dealership, but here are a couple of other things to keep in mind:
Be prepared for more paperwork: Car-buying is a paperwork-heavy endeavor, and most car dealerships are happy to handle it for you during the buying process. But if you
buy a car from a private seller
, you’ll need to transfer the vehicle title
and register your vehicle
on your own. The documents you’ll need include:
You’ll also need to
find out if the car has a lien
on it and get a VIN check before putting your cash down. Make sure to research your state’s requirements for a private vehicle sale so that you don’t miss any steps.Test drive the car: You should always
test drive
a used car to make sure the cost of the car matches its performance.Have the car inspected: Another must for buying used is to have the car inspected by a mechanic. Even if the car runs well for a test drive, a certified mechanic can
tell if the car is actually a lemon
.During an inspection, you or your mechanic will be keeping an eye out for the following things:
- Exterior scratches, rust, dents
- Tire damage
- Interior damage
- Odor—mold, mildew, smoke
- Wear on pedals
- Warning lights
- Cracked, chipped glass
- Uneven suspension
- Broken lights
- Broken electronics
- Damage under the hood—this is the one where a mechanic really helps!
- Undercarriage damage
If you know what problems are present, you’ll be more informed to negotiate a fairer price.
MORE: 7 things to look for when buying a used car
Pros of paying cash for a car
- It makes buying a used car easier: If you’re doing a private sale, cash payment may be the simplest way to process the transaction.
- You’ll save money on interest and lender fees: One obvious reason to pay in cash for a new vehicle is to avoid pesky interest payments and fees that come along with most financing options offered by dealerships, banks, and credit unions.
- No monthly car payments: When you pay upfront, you also won’t have the hassle of keeping up with monthly payments on an auto loan.
Cons of paying cash for a car
Here are some reasons why you might be better off making a down payment, taking out a
car loan,
and paying the rest off for a certain length of time—called a loan term.- It doesn’t help you build your credit score: A car loan is a really common way for people to build up good credit, assuming they’re able to keep up with their loan payments. When you put cash aside into a savings account, you can work toward your goal of paying for a car in full, but this won’t improve your credit rating.
- It’s harder to qualify for dealer incentives: It may seem kind of upside-down, but car dealers want you to finance your vehicle because it means they can charge you interest! To counteract the interest you’ll have to pay, many dealerships offer special incentives, like complimentary vehicle add-ons, warranties, or rebates, which are only available to those who finance their car purchases.
- It can deplete your savings: While it may feel better to purchase something that you can afford all at once, spending such a large amount of money in one transaction can deplete the savings in your bank account, possibly ridding you of cash reserves that could serve as an emergency fund when you really need it.
The bottom line: Paying for your car with cash is a pretty straightforward process, and often the only option when dealing with a private seller. But especially if you’re buying a new car, paying cash may not be your best option.
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FAQs
Can you pay cash for a car?
Yes, you can pay cash for a car, but it’s best to pay in a form other than traditional bills, like a money order or personal check.
Is it better to finance a car or buy a car with cash?
The majority of people benefit from doing a combination of the two. Making a solid down payment and choosing a shorter loan term can keep interest rates and monthly payments low, while still allowing you to build credit.
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