Frugal Shopper: Should I Pay Cash For My Next Car?

September 13, 2010
At a time when credit isn't taken for granted the way that it was just a few years ago, some are rediscovering the idea that new cars don't have to be financed.

If you've been good at saving money, you know that it hasn't been earning much interest anyway. But does taking out that bank check or fat wad of bills make you look like a smart high-roller, or just stupid?

As we've found in looking at the numbers, and some potential situations, it's a complex decision, and you really need to run your own numbers and consider whether paying cash is even an option.

Cash gets no love at the dealership

If want to pay cash for an affordable car, you're likely to be given alien stares around the dealership. That's because some dealerships expect to earn hundreds—in some cases thousands—of dollars per loan written. In any car, make sure you talk about financing after a price has been agreed upon.

As Jesse Toprak, vice president for industry trends at the pricing-intelligence firm TrueCar, points out, if you're not careful and accidentally disclose that you'll be paying cash, you might end up paying hundreds more for the vehicle.

And paying cash for a mainstream vehicle is quite rare. Among mass-market brands, well under ten percent, typically, pay cash on a new car. The brands least often bought with cash include Chrysler, Kia, Ford, Nissan, Dodge, Toyota, and Chevrolet. For each of those brands, less than six percent of all buyers pay cash.

Honda stands out among full-line, mass-market brands in that 12 percent of its buyers pay cash.

Luxury shoppers pay cash much more often

Among high-end luxury and performance vehicles, a much higher percentage pay cash. About a quarter of all Porsche buyers pay cash for their vehicles—some of them, like the 2011 Porsche Cayenne Turbo, costing more than $100,000. Sixteen percent of Mercedes-Benz buyers plunk down big cashier's check, while Jaguar and Cadillac follow at 14 percent, and 13 percent of those buying a BMW skip the financing.

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