If you've been focused enough to stockpile enough cash to pay for a car outright, that's a good position to be in. You've been motivated by the thought that you don't want to be tied down by a monthly payment and the extra interest that goes along with it. But parting with thousands of dollars all at once on a depreciating item (only collector's cars appreciate in value) might not be the smartest move, either. On the surface what seems like a great idea is a bit more complicated than you think.
Of course, paying for your car in cash has numerous benefits. First of all, you don't have to worry about monthly payments, and you only the cost of maintenance after your warranty runs out, as well as fuel and auto insurance. If you pay cash, you don't have to fret about how much more you paid for the car than the actual purchase price because of interest compounded over anywhere from three to eight years... a long time, and a lot of money. Also, you don't have to shop around for the best interest rate or worry about any financing paperwork with the lender. That alone could be motivation.
Dealers Aren't Motivated by Cash
My wife and I bought a used car back in 2015, and we were ready to pay cash for it. When the dealer found out, he was less than thrilled, and it was quite obvious why. When you opt for dealer financing, they get a fee. Oftentimes it comes in the form of getting you a particular interest rate, say 4% and then the lender is offering 3% to the dealer, meaning they make a 1% profit on your loan. Then there are loan processing fees, etc. Surprisingly, it's not an illegal method, and it's known as "dealer reserve".
When a dealer knows you aren't going to take their financing, they also know you probably won't take the bait in their Finance & Insurance spiel, where they try to sell you everything from extended warranties to rustproofing and underbody protection. It's a real downer for them since they're used to nickel-and-diming everyone who comes through their doors.
Look at Your Options
Even with all this knowledge, don't immediately shut down the car salesman when it comes to financing. See what they have to offer. If you're open to financing, the salesman is more motivated to negotiate with you, and that gives you pulling power. You're in no way committing to signing up for their financing, but taking this approach means you get him or her to
Also consider the fact that if you get a great price for signing up for their financing, you can make the first couple of monthly payments and then pay off the loan with your cash stockpile. This way, you get the best purchase price, barely pay any interest and walk away without having to keep making monthly payments. This is an intelligent approach, and it gives you more leverage than handing over a bank or cashier's check outright with not corresponding pricing advantage.
Negotiate Wisely if You're Going to Pay Cash
Again, it's oftentimes best not to reveal that you're going to pay cash right off the bat. If they ask how you'll be paying for the car, let them know you're open to options and would like to see what they offer. Sometimes, the dealer will offer incentives if you finance through them, so look at what they're willing to put on the table. Be a smart negotiator who appears flexible, rather than just telling them you're only going to pay cash and won't consider other options.
You might even be fortunate enough to qualify for zero percent interest or a rebate, something otherwise not available for those paying in cash. Zero percent interest also means you won't tie up all your cash in one place and can instead use it to invest those thousands of dollars to generate interest, even if it's just a small percentage. But if paying for your car in cash seems like the smartest move, you'll be free from monthly payments, and sometimes that's the best peace of mind.