Paying cash for a used car might benefit you by avoiding unnecessary debt and interest payments. It takes two to negotiate, however, and paying for your vehicle in cash doesn't necessarily benefit a used car dealer. As a result, be cautious when negotiating with dealers to get the best price, and don't advertise that you plan on paying cash rather than financing the vehicle. When buying from a private seller, on the other hand, breaking out some big bills can help fast-track your way to a deal for some new wheels.
Know the Prices
As with any used car purchase, do your homework for what similar used cars are selling for elsewhere. Edmunds.com, Autotrader.com, Cars.com and Kelley Blue Book all provide information for specific models in your area. Used car prices may be more flexible than new cars, however, because the cost basis and motivation for the seller are less certain. Unlike a new car, where factory-to-dealer costs and incentives can be obtained, the buyer of a used car doesn't know how much the seller paid for it in the first place. A dealer might make hundreds or thousands of dollars less in profit on two similar vehicles if he got one for a bargain price, so being flexible on your specific vehicle choices -- and being willing to investigate multiple dealerships or private sellers -- can save you money.
Dealing with the Dealership
In many other settings, paying with cash can lead to discounts, because it saves merchants the expense of credit card fees. For most car dealerships, however, the purchase price of the used car is only part of the equation for making money. Dealers often look to finance the purchase through their own financing arms, or help you secure the car loan elsewhere and pocket the fees that this entails. Being too open about your plans to pay in cash lets the dealer know that he won't make money off the back end, meaning she may be incentivized to take a harder line on the sticker price. As a result, the best way to negotiate a used car price with a dealer often involves not mentioning that you'll be paying cash at all.
When negotiating with a used car dealer, it doesn't hurt to go through the process of getting pre-approved for financing. There's no obligation to take the loan, and the negative impact of the inquiry on your credit score is small. Moreover, that preauthorization may lead the dealer to assume he'll make money off the financing process, which may encourage him to reach a deal on the vehicle price.
Private sellers may be more motivated to sell quickly, particularly if they're anxious to turn around and buy themselves a new car. They also may be more willing to negotiate and expect you to offer less than the asking price. Make your initial offer well below the established value of the vehicle as determined by your research, which gives you room to negotiate upward. Another strategy is to ask how much they would take, in cash, to sell the car today, and use that as the seller's opening offer rather than the listed price. The lure of a quick sale can be enough to drop the price lower than the seller originally intended, particularly if it has been on the market for a long time.
Paying with cash decreases the seller's risk that a check will bounce or that financing doesn't come through, but it increases your own as the buyer. If problems arise later, the seller already has your money and you have little that you can use to motivate the seller to cooperate besides your agreement details and the threat of a lawsuit. Get a vehicle history report before finalizing the purchase to confirm that the seller has been up front about any history of accidents or mechanical trouble. Consider completing the transaction at your bank, where the bill of sale and any other documents can be notarized at the same time.
Be very wary of anyone who insists that you pay cash for the vehicle, particularly if the seller is online or a stranger. It could be a scam designed to offer easy money and a quick getaway for someone selling the vehicle without authorization, or getting rid of a car with a salvage title or extensive repair history.