A Reminder That Being A Cash Buyer Will Not Get You A Better Price At A Dealership (2024)
The old saying that “cash is king” applies to almost all purchases, except if you want to buy a car from a dealership. A recent report from the Wall Street Journal revealed how dealers in this seller’s market are pressuring buyers to get loans because it’s another way for the dealers to make a buck.
Car buyers are finding that getting any kind of “deal” in this market is harder than ever. If you are patient and flexible you can score a “competitive deal.” However, when it comes down to actually paying for your new ride, dealers don’t really want you to show up with a check. They would much rather you get a loan.
“Car buyers say they are hearing from dealers that cash and financing from outside the dealership aren’t welcome. Dealers tried to get some of them to finance by quoting higher prices for cash sales or refusing to sell if they couldn’t arrange the financing, according to interviews with buyers.”
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Dealers have always preferred you finance versus pay cash, but they have amped up the pressure to take loans and are, in some cases, even refusing a sale if you intend to pay cash. And yes, this is perfectly legal for a dealer to refuse your money. Also, if you are getting a loan from your local bank, credit union or online lender of your choice, you are still considered a “cash buyer.”
As for why dealers don’t really prefer cash buyers the answer is obvious, they make money on the loan. Dealerships can do this by getting a kickback from the lender for signing you up for a loan, but dealers can also “mark up” the rate that they give to you and pocket the difference. For example, let’s say the bank gets you approved for a five percent APR, the dealer can say “Well, the best we can do is seven percent.” If you accept that, they can pocket the two percent difference.
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So, what should you do to avoid getting screwed on the financing?
It is still wise to get pre-approvals from other lenders before you apply for financing at the dealership. Most decent dealers will want to compete with the rate you already have and either match or beat the APR. These pre-approvals can be critical for folks with less-than-perfect credit as interest rates can vary dramatically if you aren’t what the lenders consider a Tier 1 borrower (above a 700 FICO score).
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If you do end up in a situation where a lower sale price is contingent upon financing with the dealer, know that in most states there are laws against pre-payment penalties. So you could take the better price, finance with the dealer, then immediately pay the loan off using your own funds. The other option is to re-finance the loan from the dealer with a different lender at a lower rate. Auto-loan refinancing is generally easy and usually has little or no cost to do so.
Finally, you should always get an itemized out-the-door price in writing before closing a deal, and ideally before you even step foot into the showroom. You want a complete breakdown of the agreed-upon sale price, taxes, and any additional fees. That way, if you are paying cash you know exactly how much much should be on the check.
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Tom McParland is a contributing writer for Jalopnik and runs AutomatchConsulting.com. He takes the hassle out of buying or leasing a car. Got a car buying question? Send it to Tom@AutomatchConsulting.com
Dealers sometimes offer cash discounts to buyers who finance a vehicle. When you pay cash, those disappear. Miss out on financing deals. If you qualify for a favorable interest rate, paying cash may not be the smartest thing to do because you'll lose very little money by financing.
However, blurting out "I'm going to pay cash" to a car salesperson will likely get you a lousy deal on your car purchase. As the margins dealers traditionally made on car purchases have slimmed, auto retailers now make more and more of their profit from the financing deals they place on new and used car financing.
It's all about how dealerships can make the most money. Through financing, dealerships make money through interest on loans, making sales people encourage this option the most.
The only way it makes sense to pay for a vehicle outright in cash is if you have plenty on-hand. And while that seems obvious, you don't want to completely deplete your emergency fund. You should ideally be able to make the cash purchase and still have plenty leftover.
A down payment helps many lenders remove some of the upfront risk associated with a car loan. So if you decide to buy a car with no money down, realize you may have to pay a higher interest rate throughout your loan. It can also mean you may pay more for your loan over time due to those higher rates.
For decades now, car salespeople have constantly gone to “talk my manager” for permission to negotiate during the sales process. This tactic, paired with countless other dealer antics is very frustrating for customers. If you're unfamiliar with your salesperson saying “let me go check with my manager,” you're lucky!
However, you can use the guideline of 2 or 3% on less expensive brands, and 5 to 10% on luxury brands as a rule of thumb. Regardless of if you're buying a Kia or a Mercedes, the reality is there isn't too much room to work with when just looking at the mark up. This is where factory incentives come into play.
The Red Flags Rule (the Rule), enforced by the Federal Trade Commission (FTC), requires automobile dealers to develop and implement a written identity theft prevention program designed to identify, detect, and respond to warning signs—known as “red flags”—that indicate that a customer or potential customer could be ...
Monday is usually the best day of the week to buy a car. This is when showrooms will be the least busy, which means you'll likely get more time and attention from the sales staff and have more time to go on test-drives. Edmunds suggests Tuesday is a better option than Monday if the car dealership is closed on Sunday.
You may not be able to access some dealership incentives: Many dealers offer rebates and other incentives, but often only if you finance your vehicle. You'll miss a chance to build credit: By using an auto loan, you could build up your credit score.
Before shopping for a new car, you must do your homework — sticker price vs. invoice, incentives if applicable, your trade-in value, and loan interest deals. Calculate what you expect to pay for that new vehicle. Again, don't tell the salesperson that you plan to pay cash before negotiating.
Some of these advantages include: Spending less money: When you purchase a car in cash, you avoid paying interest on a loan and other lender fees. Having to make wise decisions: If you pay cash for a car, you probably have a strict budget. You won't be tempted to purchase a more expensive car than you can't afford.
When considering whether to make a down payment or trade-in a vehicle it's usually best to make a down payment from a financial perspective. You'll get more bang-for-your-buck when offering a down payment. This could mean selling your vehicle privately before going in for a purchase.
However, you can use the guideline of 2 or 3% on less expensive brands, and 5 to 10% on luxury brands as a rule of thumb. Regardless of if you're buying a Kia or a Mercedes, the reality is there isn't too much room to work with when just looking at the mark up. This is where factory incentives come into play.
Today, many shoppers negotiate for a used car by requesting a car dealer quote online or texting the car's owner. Get the numbers: Look up the car's current market value. Make the right opening offer: Keep your offer low, but realistic. Make a counteroffer: Sweeten the deal, but not too much.
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