How To Buy A Car With Cash (And Should You?)


A car loan payment can easily account for several hundred dollars or more in your budget, but imagine how beneficial it would be if you could purchase a new car without having to deal with a loan at all.

You could immediately enjoy the financial benefits while also having access to a brand new vehicle still under warranty. You may understandably want to know how to buy a car with cash, but it is also important to ask if you should even bother with this process.

After all, in order to pay for a car with cash, you will need to spend tens of thousands of dollars. You may wonder if it is better to invest this money rather than to spend it all at once. A closer look will help you to determine if you should do this and how to pay for a car with cash.

Related: What Credit Score Do I Need To Buy A Car?

What You Need To Determine If A Cash Purchase Is Right For You

The first step to take to determine if paying cash for a car negotiating is the right move to make is to gather together some important details. These include:

  • The sales price of the car you want to buy
  • The interest rate of the loan you qualify for
  • The term length of the desired loan
  • The estimated trade-in value of your vehicle today

After you have gathered together these items, use an online loan calculator with an amortization table in it to determine the estimated monthly loan payment. The amortization table will also show you the total amount of interest you will pay over the life of the loan.

This is one of the most significant costs associated with buying a vehicle with a loan, but it is not the only cost. The lender will also have loan fees that may equate to a thousand dollars or more of additional expense.

When you pay cash for the loan, you can avoid having to pay for these unnecessary expenses. Essentially, you can save thousands of dollars.

Buying A Car With Cash Versus Financing

You may also wonder if the cash you would otherwise use to pay for the car could be invested for a better return. The unfortunate reality is that most car loans generally cost more than the amount you could recoup through an investment.

In addition, keep in mind that you will be able to save and invest money after the vehicle has been purchased. If you apply for a loan, this additional investment is not a possibility because of the loan payment.

Related: Buying A Car On Finance: Pros and Cons

Step By Step Instructions To Buy A Car With Cash

As you can see, most people will benefit financially by paying for a car outright rather than by using a loan to fund the purchase. These helpful steps can help you to more easily buy a car with cash.

1. Determine How Much Money You Need.

To get started, you need to create a savings goal to aim for. To accomplish this, you should determine the amount you want to spend on a new car.

You may not know what the exact price of the car may be a year or two from now when you have enough money saved for your purchase, but you can estimate a reasonable figure.

Do not forget to allocate funds needed for tax, title and registration. You will not need to factor in a cost for loan fees.

2. Estimate The Amount Your Trade-In May Be Worth.

The value of your trade-in can directly offset the amount you need to save. Consider if your current auto loan will be paid off by your target purchase date. Use an online vehicle value estimator to determine how much money you may receive for the trade-in.

Pay attention to differences between selling the car on your own and trading it to a dealership. If you intend to sell the car on your own, you may need to allow several weeks in your timeline to find a buyer.

3. Create A Target Date For the Purchase.

Another step to take is to create a target date for the purchase that is reasonable. It may not be reasonable to expect to save $30,000 over the course of a single year on a tight budget.

On the other hand, it may be reasonable to expect to save $20,000 over two or three years on a moderate budget. If your car loan is paid off, you may consider saving an amount equal to or slightly higher than your previous car loan each month.

Related: How To Rent A Car With Bad Credit

4. Adjust Your Budget To Account For Monthly Savings.

After you have determined a reasonable target date, you will be able to determine how much money you need to save each month to reach your target date. Take time to review your budget to ensure that this monthly savings amount is reasonable for your budget.

If you cannot comfortably afford to save this money, you likely will not reach your goal. In addition, you should also ensure that you are saving money for other purposes, such as retirement or a rainy day.

5. Make Savings Automatic.

Many people struggle to save money regularly. This is often because they try to save any money that is left over at the end of the month. However, the impulse is often to spend money that is available, and this may mean that minimal funds remain for savings at the end of the month.

A smart idea is to set up automated bank transfers that move the money from your checking account to your savings account before you are available to spend it. For example, some people will set up the transfer to occur on the day they get paid.

A car loan often seems like a necessary expense in your budget. After all, you need access to a car to get around town conveniently, and it may not seem reasonable to pay for a car without vehicle financing.

The reality is that if you are willing and able to continue to drive your current car for a period of time, you can save up enough money to pay for your next vehicle outright. This can save you thousands of dollars of unnecessary interest charges and loan fees.

Take time to analyze your current vehicle situation to determine if you should buy your next car with cash. If you determine that this is the right move for you, you can learn more about how to buy a car with cash to accomplish your goal.

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