Cash, Credit, or Finance – What will get you the best deal?

Alternative car financing methodsCan you get a better deal on a car if you pay in cash?  Surprisingly, the answer is no!  Maybe if you were buying Rolling Stones tickets in a parking lot, but if you want to buy a car, financing will probably get you the best deal.  

Let’s forget for a moment that you will obviously pay more over the life of a loan due to interest and just consider how the payment method affects the purchase price. 

Understand that auto dealerships make their money 3 ways: 

  1. Profit from the car you buy (plus dealer add-ons)
  2. Mark-up from reselling the car they buy from you
  3. Mark-up from financing deals

If you take away one of their profit centers, do you think that will help your negotiating position?  Nope.  So use financing to your advantage.    Make the deal as if you were financing the car, but if you are paying cash or making a large downpayment, wait to mention this until after you've settled on price.  

If you will be financing, just be sure the dealer's financing offer is comparable to low financing quotes you can get online.  Higher monthly payments from a high interest rate could easily outweigh any gains you make from a lower car price.

As for credit cards, it’s highly unlikely a dealer will allow you to pay this way.  Merchants pay 2-4% in fees to the credit card companies for accepting payments.  For most retailers, this is a cost of doing business, but for car dealers it could completely wipe out their profit margin. However….

 …many dealers will let you put your down payment on a credit card.  As long as you have the money to pay it off immediately, I always do this to get the points!

There are many other factors to consider when deciding between financing and paying cash.   Do you have enough cash available? Do you have good credit? Can you make more money investing than you would pay in finance charges? Consider these questions first, but keep in mind that financing is an option that may help you get a lower purchase price. 

How do you like to pay for a new car?

Photo by: Emsago
Edits by: BFS

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