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Buy cars with cash
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May 23, 2001: 2:38 p.m. ET
Many cash rich people take the no payments-no problem route
By Lucy Lazarony
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NEW YORK (Bankrate) - More people are paying for their hot new car with cold, hard cash.
In 2000, 8.9 percent of new car buyers bought cars with cash, more than double the 3.9 percent who did so in 1998, according to CNW Marketing/Research in Bandon, Ore.
"A lot of people got out of the stock market and had cash and they had to do something with it," said Art Spinella, vice president of CNW Marketing/Research.
So they found the cars they wanted, they paid cash and they drove away.
"It's a good feeling. You pay for it, and you're done. And you're done forever," said Mari Adam, a certified financial planner in Boca Raton, Fla. "It's nice to pay cash. You own it, and nobody can bother you."
There were plenty of no-worries car customers in the 1950s. Back then, about one-third of all car buyers paid cash. There weren't nearly as many financing options in those days. And lots of people preferred paying with cash.
"The attitude was such that you didn't buy something unless you could afford it. And you couldn't afford something unless you could buy the whole thing," Spinella said. "You saved the money up first."
When cash is not an issue
Many of today's cash buyers are affluent shoppers with affluent tastes. They may be buying their third or fourth vehicle and they just don't see the point of monthly payments. Saving is not an issue with these folks. They have plenty of cash available -- at all times.
Cash purchases account for 20 percent or more of sales transactions at Jaguar, Land Rover, Mercedes and Porsche. About 40 percent of the buyers of the Lexus LS 430 luxury sedan paid cash in 2000.
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Investors cash out of tech stocks and into new cars. (FILE) | |
Many of the new influx of cash buyers were folks who had cashed out of the stock market and were ready to buy. Many were lucky and savvy enough to sell when prices were still high.
One of Spinella's friends rode the tech stock wave and got out before the big slide.
"She got out of tech stocks a year ago and bought a new Beetle," Spinella said. "She paid cash for it, and now she's looking at a PT Cruiser."
Paying for a car with cash may feel good, but is it a sound financial move? It can be, but you should definitely look at other options first.
"If you're going to buy a new car, you're going to save money by paying cash -- assuming there's not some incredible deal like 0 percent financing," said Nancy Castleman, co-author of Invest In Yourself: Six Secrets to a Rich Life.
Look at other financing deals
Plenty of low-rate financing deals are available. Just about every major auto manufacturer is offering some kind of rock-bottom financing deal.
You'll need squeaky-clean credit to qualify for the absolute lowest rate. But it's certainly worth checking out. You never know what you'll get.
"If they make you a deal that's too good to be true, of course, borrow," Adam said. "If someone is willing to give you money for nothing -- take it."
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It's a good feeling. You pay for it, and you're done forever. It's nice to pay cash. You own it, and nobody can bother you.
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Mari Adam
Certified Financial Planner |
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One of her clients was prepared to pay cash for a car until he learned that he qualified for a 3.9 percent financing rate. He was earning more than that in his money market account. So he took the financing and kept the cash.
What if you don't qualify for a super-low rate, should you go ahead and pay cash? Look at your other finances, first. If paying cash for a car will tap you out, don't do it.
"Make sure you have other cash resources available equivalent to three months living expenses," Adam said.
Save the cash for last
Auto shoppers keen to pay with cash should keep that information to themselves. Don't tell the dealer until the last possible moment.
"Cash is actually trash to a car dealer," said W. James Bragg, author of Car Buyer's and Leaser's Negotiating Bible. "A car dealer makes just as much money on the financing as they do off the selling of the car."
A dealer gets a cut of the profits on all loans arranged at the dealership. He won't be happy to hear that you're paying with cash. So tell him after you've negotiated a fair price on the car and after you've checked out those rock-bottom financing rates.
Many dealers will want to talk to you about financing from the get-go. Don't let them. Focus on getting the best price on the vehicle. Save the financing talk for later.
If you don't qualify for a loan with a super-low rate, tell the dealer that you'd rather pay cash.
"Negotiate the price first. It's none of their business how you're going to pay," Bragg said. "If you tell them you're going to pay cash, they'll go for a higher price on the car."
The way the stock market has been going the past few months, there's a good chance there won't be as many cash buyers turning up at car dealerships in 2001.
"No one has anything to cash out," Adam said. "I think this year people are going to be feeling pretty poor." 
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