Do Car Dealers Prefer Cash or Financing?

by Louise Balle ; Updated July 27, 2017

When you buy a car you have the option to either pay with cash or seek financing in the form of an auto loan. When you finance you must pay interest and continue to send money for the car every month. If you have the luxury of choosing to pay with cash or getting a loan, you might wonder which method the car dealer would prefer. Knowing this could give you some bargaining advantages when it comes to the car deal.

Which Is Preferred?

You may assume that a car dealer will prefer a buyer who comes in prepared to buy the car with cash or a cashier's check. The transaction is simple and straightforward — you make your payment and drive off the lot just like any other retail transaction. But in some cases the car dealership may benefit financially if you get a loan instead. Dealerships often act as brokers for car loans or have associated financing units. When a customer comes in to buy a car and uses the dealer's financing company, the dealership receives a commission for closing the loan as well as the profit from the vehicle sale.

Bargaining

Since in some cases the dealer may benefit from a car loan, try to negotiate with the car salesman on the cost of the car. Place an offer for the car based on taking the dealer's financing. Explain that you can purchase the car with cash, but ask if the dealer can offer incentives if you decide to buy with a loan instead. You may find that the salesman will work with you on the price or offer a rebate of some type.

Decide Which Is Best For You

It's important to focus on which payment method benefits you most when buying your car. Weigh the total cost versus the total benefit of both choices before you make a final decision at the dealership. If you have the cash to buy the car but choose to finance because the dealer offers you an irresistible deal, keep in mind that you can probably just pay off the loan soon after closing instead of making monthly payments that include interest costs.

Additional Costs

Whether you choose to finance or pay cash don't forget to include additional fees in your final amount due. The car dealer may charge you to issue your temporary tags, register the vehicle, cover your state sales tax cost for the car and even for advertising costs in some cases. When paying cash, make sure you have the money on hand for these additional costs as well. If you finance, you may also have to pay document preparation and loan origination fees in addition to the price of the vehicle.

About the Author

Louise Balle has been writing Web articles since 2004, covering everything from business promotion to topics on beauty. Her work can be found on various websites. She has a small-business background and experience as a layout and graphics designer for Web and book projects.