A lot of car buyers believe they’ll be able to get a better deal when they buy cash. This is not the case.
Finding enough money to purchase a car using cash is definitely more difficult than taking out a loan, which is why people think they must be rewarded for this feat.
The reason that it doesn’t work this way is that dealers earn money in three ways to make money when you purchase a brand-new vehicle:
- The Sale of the Car
- The Financing
- The Trade-In
The majority of people know that dealers earn a income from the sale the car (and the trade-in, if you own one) But what people do not know is that dealers can earn the majority of their profits from financing through the charge of the mark-up on the loan.
For instance, the dealer will provide you with a car loan via the finance partner of one for the rate of 5%, and will add an additional 2.2% markup on the loan. You’ll pay interest of 7%, and 2% of it going into the dealer’s pockets.
To this end, the majority of salespeople will inquire upfront to determine if you intend on financing or making a cash payment.
Do not tell them the cash you’ll be paying!
If asked, you can reply with “probably”. If they keep calling you, let them know that they’re interested in financing, but that you’d like to come to an agreement on the cost of the car first.
If you inform them that the cash payment is in cash they’ll automatically make a lower profit, and therefore not be as likely to bargain a better rate for you.
If they think that you’re likely to finance the purchase then they’ll be able to make several hundred dollars additional profit, and thus be more flexible about the cost of the vehicle.
When you’ve hammered out the details and accept the price of your new vehicle, you can inform them that you have decided to change your mind and would prefer to make a payment in the cash.