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Buying Cars With Cash is Worth the Price

December 7, 2011

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Cars are expensive. According to the National Automobile Dealership Association the average retail price of a new car is $29,793, and a used car is $16,474. For most families the price of a new car is about half of a year’s wages.

Because cars are the second most expensive item most of us will purchase, the idea of purchasing one with cash may sound crazy. Who has $30,000 in cash to buy a car and why would they when financing it is so easy? Even people with bad credit or no credit can get a car loan.

There are several reasons to consider buying a car with cash instead of financing it.
  1. Paying cash is cheaper than financing. Some people would disagree with this because they may think that investing the money in the market would yield a return that makes financing more economical. There are many calculations that disprove this “opportunity cost” theory.
  2. The process is quick and painless. The car belongs to you and you do not have to deal with a bank or financing company. The title is in your hands and the deal is done.
  3. No new debt. If you are like me and you do not like debt, do not incur any.
I know, this sounds good for rich folks but you are not one of them. Where are you going to get $30,000 to buy a car? Consider this:
  1. Delay buying a car until you have the money to pay for it. Many of us live near public transportation or can ride with family and friends. Make sure you reimburse family and friends for the ride.
  2. Save money in a money market deposit account or money market fund if you can.
  3. Do not buy a new car. Used cars in good condition cost almost half of what new cars cost.
  4. Negotiate a good price before you inform the dealer that you are not financing. One of the best ways to negotiate a good price is to be willing to walk away. Car dealers need to sell cars and they are more willing to negotiate if they know you will walk away. Choose your car, your options, and your price and be willing to move on if you do not get what you want.
  5. Agree to finance but then pay off the car in full within 30 days. I do not know if this is true, but the finance guy at the dealership told me that if I had financed my car I could have saved a few hundred bucks on the purchase price. I did not think it was worth completing all the paperwork and he told me this after I told him I was paying cash.
Buying a car with cash means you are not taking on more debt; however, it requires discipline and the willingness to delay gratification.
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