Why You Should Never Tell a Dealer You're Paying Cash
Saving up enough money to buy a car with cash is certainly more difficult than getting a loan, so people assume they should be rewarded for this achievement.
The reason it doesn't work that way is because car dealers make money three different ways when you purchase a new car:
- The Sale of the Car
- The Financing
- The Trade-In
Most people know that dealers make a certain profit on the sale of the vehicle (and the trade-in if you have one), but what most don't realize is that dealers sometimes make the bulk of their profit on the financing - by charging a loan mark-up.
For example, the dealer will set you up with a car loan through one of their finance partners at 5% interest, and will tack on an extra 2% loan markup. You will be paying 7% interest with 2% of that going straight to the dealer's pocket.
For this reason, most salesman will ask you upfront if you will be financing or paying cash.
NEVER tell them you're paying cash!
When asked, just respond by saying "probably". If they keep hounding you, tell them you're interested in financing but that you want to agree on the price of the car first.
If you tell them you're paying cash, they will automatically calculate a lower profit and thus will be less likely to negotiate a lower price for you.
If they think you're going to be financing, they figure they'll make a few hundred dollars in extra profit and therefore be more flexible with the price of the car.
Once you hammer out and agree to the price of the new car, then you can tell them you changed your mind and would like to pay cash.
My Recommendation for Car ShoppersTrueCar No-Haggle, CarsDirect, and NADAGuides are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid