Paying Cash for a Used Car

My first car was a leased SUV that had to be cosigned by my grandfather because I had no credit, and the dealership wasn’t willing to risk a new SUV lease on a 20 year-old kid earning $18k a year – who coud blame them?

That move set in motion a number of dumb car moves I’ve made over the years. I ultimately paid off that lease by buying another SUV and rolling the costs into its financing.

When my wife began dring that SUV, I went out and bought a late model truck – more late model than I could really afford.

Finally, after a decade of poor auto-buying decisions, I finally figured out that I should eliminate car payments altogether by saving cash and buying something I could afford, without financing.

Paying Cash for a Car

There are many advantages to paying cash for used cars. Even new cars can be cash purchases if you are diligent and focused in your savings habits.

How will you benefit if you decide to save enough money to pay in full instead of financing a vehicle purchase?

If you are prepared to pay cash, you may be able to find a great used car through a private sale.

Private sellers do not want to be bothered with financing—they just want to sell their car for more than the trade-in value they’d get at a dealership.

Make a cash offer that is fair and you will save the costs associated with a dealership. Used cars are a better value than new cars because somebody else has already taken the big hit, i.e. the steep depreciation that occurs during the first year of a car’s life.

Good values can also be found when car rental companies sell their old fleet vehicles. These former rental cars often have a lot of life left in them; they are only sold because they have been fully depreciated by the company for accounting purposes.

Maintenance records should be available so you can make a cash offer with confidence.

Paying cash saves you time and preserves both your privacy and your peace of mind. Imagine buying a car without needing to disclose your financial information to the dealership.

There is no need to worry about reading the fine print on loan papers if you are not taking out a car loan.

If there is no loan, there is no wondering if you could have found a better interest rate; your interest rate is zero, because you borrowed nothing.

Paying Cash: A Guaranteed Way to Never Be “Upside Down” in a Car Loan

There is also not chance of caught in an “upside down” car loan, a condition in which the vehicle’s value drops below the outstanding balance on the loan. The person who is “upside down” cannot sell the car for enough money to pay off the loan.

If the bank repossesses the car, the debtor is still liable for the difference between the price the bank gets from selling the car and the principal balance of the loan.

By paying in full up front, the consumer avoids such a nightmare.

Of course the greatest advantage of paying cash for your car is that you will not have a monthly car payment.

While others are making large monthly payments on new cars, you can set aside a monthly amount to be saved for car maintenance and for the car’s eventual replacement.

Through careful planning, you can have reliable transportation without car payments. When repairs are needed you can pay cash for the repairs.

Best of all, you can go to sleep each night without concern over losing your transportation because you can’t make the payments.

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One comment

  1. I am so glad someone has written about this. The constant blast of advertising over-sells the new car deal.

    I have owned shabby high mileage vehicles my whole life. My current vehicles are 11 and 17 years old, 112k and 108k. I don’t lock them; I don’t care if you scratch them. I keep impeccable maintenance habits. I have a trusted local mechanic which makes it all possible. I did buy two new cars, 1981 when my son was born and 2000 when incentives and lower interest rates on new cars seduced me. After fully paid I gave the 2000 to my son who wrecked in in the rain. In 2010 I “re-bought” a similar in the used market. Purchase, fixing up, tax and title I spent $6,800 for the two of them, cash. I budget $200 per month for maintenance and repairs. I spend $200 a month commuting on mass transit, so I am not a high mileage guy.

    I was appaled by Cash for Clunkers. Subtracting assets from a system is wasteful. The help it gave Detroit came at the expense of the local mechanic. I suppose it also put upward pressue on used car prices which hurt lower income groups. Neither local mechanics nor used car buyers had any voice in the matter.

    I have read a a lot about Cash for Clunkers and the general view of economists is that it was necessary to flush out Detroit’s stagnent inventory. If the industry is really doing as well as reported, I suppose it was a good thing.

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