Why Buying a Car with Cash is the Best Way to Go.

Transportation costs are the second highest category in most people’s budget – behind housing. And cars only go down in value. Which sounds like a lose-lose situation to me. Learn how to buy a car with cash, and why.

I wrote an article a while ago about the value of cars and how fast they depreciate. I mentioned in that article that the best car to buy was 6-8 years old and approximately 30% of its original value. You should also look for cars with relatively low miles for their age (60-90k miles).

Based on the depreciation curve this makes the most sense. There is still plenty of life left in the car, and someone else takes most of the loss in value.

And of course, financing said car destroys any semblance of a good decision. Buy with cash up front otherwise you’ll pay too much over the long-term. Shake the payment syndrome!! You got this!!

And what kind a personal finance blogger would I be if I didn’t take my own advice?

So . . . we decided to buy a car with cash.

I think it was a great decision. Before I get to the how-to of buying the car, let me tell you what I was looking for.

I wanted a car with these characteristics:

  • Good gas milage – at least 28/29 or higher mpg on the highway.
  • AWD or 4WD – we live at the top a steep hill, and snow in the winter makes it tough.
  • A hatchback – ease of loading and un-loading along with more storage volume than a typical trunk
  • 6 – 8 years old
  • 60k – 90k miles
  • priced under $12,000

By my reckoning there aren’t many vehicles that fit all these characteristics. Except the Subaru Outback.

That’s what I was on the lookout for. A low mileage 2010-2012 Subaru Outback priced below $12k. Some of you may be laughing right now because you know what I found out.

Outback owners like their cars, and they don’t get rid of them. Those that do, get rid of them with high miles. It seemed that every Outback within my price range had between 100k – 120k miles. Which although still leaves plenty of life for an Outback, was higher than I was looking for.

But after a few months of looking, I finally found an Outback that fit my specifications.

It was a 2010 Outback with 84k miles listed for $10,990!!

I knew we had to jump on it. Or maybe there was something terribly wrong with it?

If you’ve never had the opportunity to buy a car with cash, here’s how you do it.

Determine the price you want to pay for the car.

For this car, based on what I knew, I decided that I wanted to pay no more than $10,500. So I transferred some money from our savings account and went to my bank a few days later.

Get a cashier’s check for a little less than your price.

A cashier’s check will be accepted where a personal check might not, especially for larger amounts. It’s safer than carrying cash.

There are always extra fees which include title, registration, and taxes. Because it’s hard to predict exactly what the final (out-the-door) price will be, make sure your cashier’s check is for less. Then you can either pay the remainder with cash or a personal check.

A cashier’s check also protects you and the dealership. It’s made out to the dealership, so no one else can cash it if it gets stolen or lost. And the dealership knows that the check is good – otherwise the bank would have never given it to you in the first place.

I got a cashier’s check for $10,000.

Actually Buying the Car

We set up an appointment with the dealer, and then did more research on the vehicle. I spent time on carcomplaints.com to get a feel for what people complained about for the different years and models. It’s a great resource.

When we arrived at the dealership, we test drove the car and inspected it inside and out. It was clean!! And in great condition.

We disclosed that we would be paying with a cashier’s check and the remainder with a personal check. It turns out that this particular dealer doesn’t negotiate prices below $12,000, which made it easier. And they also had just lowered the price – to $10,411!!! Just under what I wanted to pay. It was perfect.

The whole process took about two hours. Afterwards, we went out to dinner, and then came back and picked up the car. All-in-all, it was a fairly painless process.

We didn’t have to haggle over the price, or worry about the interest rate for which we could qualify. And now, we own our new car outright!!

What if I don’t have the cash?
car depreciation

If you can’t buy a car with cash, then you should wait to buy the car. Or buy a cheaper car. There is nothing wrong with buying a $500 beater car that lasts a year or so.

But in the meantime, save up what you would be paying towards a car payment each month. Use this money to buy another car. For instance, save up $300 per month for six months while you drive the $500 car. Then you can trade in your $500 car for $400 or so and add your $1800 in with it, and get a much nicer $2200 car – that you can pay for with cash!!!

For a while you’ll be able to just trade in your “old” car and add this extra money in with it to get a nicer car. Remember that once a car’s value gets below 20-25% of original value, you won’t lose much on your trade in. Especially if you trade it in after only a year or two.

It’s much easier to “get ahead” of the depreciation on older cars. In other words, on older cars the value decreases slower than you can save money for a new car. And it’s certainly much better than financing your life away.

Take-aways

Always buy a car with cash. Research the model you want, and never buy a car on an impulse.

We got a great used car with cash that I’m certain will serve our family well. Hopefully, you can take this info and do the same for yours.

How many cars have you purchased with cash?

Please leave a comment, and thanks again for reading and sharing.

Author

Chris is the original Cash Dad. He's a father of 3 and a mechanical engineer by trade.

8 Comments

  1. Excellent article, Chris! We have paid cash for all of our vehicles since 1982. Your advice on taking a cashiers check to the dealership is great and something we’d never thought of doing.

    • Chris Reply

      Wow, that’s great! That’s a lot of years of great decisions ?
      Thanks for the feedback.

  2. I’ve always bought cars, new or used with cash. And now that I’m early retired and financially independent I only buy used cars, but do buy them with cash. My wife also buys with cash but she gets a new car usually although the “new” one she is driving now is one she bought with cash in 2006. And I totally agree, if you cannot pay cash then you are buying way more car than you can afford. One reason I’m retired and my buddies back at the plant aren’t is they threw away a fortune in payments on giant pickups for them and Suburban’s for their wives. I hope they really enjoyed the vehicles because I really enjoy not being at work!

    • Chris Reply

      Hahaha – right on. I’m trying to get there some day. Buying things we can afford with cash is a great habit to get into. Well done exercising that habit over a longer time period!
      Thanks for the comment. ?

  3. I am so glad that you did the research and made the perfect choice for our family. i wouldn’t even know where to begin the process of car searching since technically you have always done it. I love how you detailed out the process you took to buy the car.
    So glad I have you!
    Kate

  4. Interesting take. I completely agree with buying used cars, as the new car hit you take is not worth the new car smell. We wrote a similar article a month or so ago about buying used, and got some backlash from people claiming that the new features and reliability are more important to them than the money lost. Unfortunately, there are some that would never buy something 6-8 years old, as you recommend. The only thing I would differ slightly on is always paying in cash. I recently purchased a 10 year old truck for just under 20k, and financed it. The interest rate was so low (and I will be paying it off in 2 years instead of 4), that it was worth it to pay a little bit in interest rather than lay out almost 20k at once. But no matter how you pay, I’d never recommend buying a new car.

    • Chris Reply

      Thanks for the comment. I don’t quite understand how paying more than 20k later is better than only paying 20k now, especially for something that always goes down in value. But I do appreciate the feedback. ?

Have Something to Say? Leave a Reply