Is it desirable for them if I paid in full? Should I let them know or should I keep it to myself? Will I get lower prices if I was willing to pay in full?

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    Per the lottery commercials I have seen, no. In those commercials they depict the buyer negotiating the salesman way down, after which he tells the boss, "We'll get him in financing!" only to find the buyer is paying cash (because he won the lottery) Of course, this is not really the way cars are usually sold... – Michael Jan 14 '15 at 17:13
up vote 22 down vote accepted

Ideally you would negotiate a car price without ever mentioning:

  • your intentions around financing
  • whether or not you work for the car company
  • whether you've recently graduated
  • any trade-in you might be bringing or lease you need to get out of

And other factors that affect the price. You and the dealer would then negotiate a true price for the car, followed by the application of rebates, followed by negotiating for the loan if there is to be one.

In practice this rarely happens. The sales rep asks point blank what rebates you qualify for (by asking get-to-know-you questions like where you work or if you served in the armed forces - you may not realize that these are do-you-qualify-for-a-rebate questions) before you've even chosen a model. They take that into account right from the beginning, along with whether they'll make a profit lending you money, or have to spend something to subsidize your zero percent loan. However unlike your veteran's status, your loan intentions are changeable. So when you get to the end you can ask if the price could be improved by paying cash. Or you could try putting the negotiated price on a credit card, and when they don't like that, ask for a further discount to stop you from using the credit card and paying cash.

  • Yes, but I would say to get a value for your trade before you even mention what car you are interested in buying. – AbraCadaver Jan 14 '15 at 16:05
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    @AbraCadaver they can offer a "generous" trade in and then dig their heels in on car price. Or vv. Better for selling your old car to be a separate transaction from buying this one. Alternatively, drive the old car into the ground and let the tow truck guy have whatever the junkyard will give for it in lieu of paying for the tow. That's how to really save money on new cars: don't buy them more than once a decade. – Kate Gregory Jan 14 '15 at 16:14
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    In my (admittedly limited) experience, they actually prefer financing. A number of years ago, a salesman explicitly told my dad this. I'm fairly sure the managers (at least) get kickbacks/incentives for it. – Kevin Jan 14 '15 at 18:56
  • @KateGregory - I am not too sure about that. For a lot of cars there is a point were car value and repairs add up to be more than a depreciation cost. While you statement might be true for most small compact 4-bangers this would not be the case for bigger vehicles. – blankip Jan 14 '15 at 21:50
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    when I face a "large" repair bill, @blankip, I ask myself how many car payments it is. 1 or 2 car payments a year worth of repairs for the last 5 years of a car's life is a pretty decent expense level. Depreciation is less relevant to me since I will literally throw the car away when I find the repair expenses get above that level - typically a single multi-thousand dollar problem that causes us to give up. – Kate Gregory Jan 14 '15 at 23:26

Yes you tell them. I can say that I pay cash for all my cars and always get cars for lower than the TrueCar low-end. There are basically two steps:

  • go test drive, negotiate fully, leave (unless you are given a mind-blowing offer). This may take you one to many dealerships. It depends on how well you know what car you want and how much a dealership will negotiate.

  • you pick a night that another dealership that specifically has the car you want (or multiple - even better) is open and you go in 30-45 mins before they close.

Paying cash is key for this to work. By the time you get to numbers they will be almost closed. Their finance guy might be gone so you will get your salesman and a manager.

I will use my last car as an example. Toyota Highlander 2015 with MSRB 32,995. TrueCar at 29,795 with a good deal at 29,400. I simply talked to my sales guy said I would like to walk out with the car tonight. I have already talked to XYZ dealership and they offered me 28,500 - which is already below TrueCar low price. I asked for $27,900. Boom 10 minutes later car bought at 28,100.

Cash is king. The sales guy and manager will bite the bullet on profit for ease of sale. Going in late is the key to using the cash. You don't have the finance guys jumping in and you have less people to move through. Also they know they have limited time to deal and if you walk off the lot there is less than 10% chance of you coming back - they want to close. They are making minimal profit but doing minimal work. With cash your sales guy is on your side because you are basically throwing him a couple hundred dollars at the end of a shift (where most would just be sitting around watching TV).

Some other tips:

  • be fair. If they would have said 28,300 is our lowest that we can go and that's it. I probably would have still got the car. Dealerships will tell you their lowest price if you are close and you are still below it.

  • since they didn't show me their lowest price I didn't budge much but still budged a bit to show good sport.

  • They brought their invoice number out to show that at 28,100 that they were going to lose $1500 on the car. I made the manager laugh because my response was to bring up KBB and show the used car price for the car, which was minus $2000. So I just said, "Well you lost $1500 but I lose $2000 driving this off the lot." I then went back to $27,850 to meet in the middle of "losing" money. This actually closed the deal. Anyway don't ever believe any piece of paper they show you with numbers. These dealerships get monthly bonuses on sales and that is a lot of their profit past selling your trade-in.

  • If you actually value your money you would never be trading in a car to a dealer so if you are paying cash, sell your own car or at least take it to a place like CarMax which I don't endorse but better than dealer.

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    But if you actually value your money, you'd never be buying a) a new car; or b) from a dealer. – jamesqf Jan 14 '15 at 18:46
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    I haven't traded in a car in many years. My last three cars I donated to charity. I figure the difference between what I could have gotten by selling the car, versus the tax deduction for the donation plus the fuzzy warm feeling of giving to charity, I came out ahead. :-) I used to live near a homeless shelter that would give used cars to unemployed people who didn't have one so they could drive to work. Most, I think, just sell the car and use the money like any other donation. – Jay Jan 14 '15 at 19:27
  • @jamesqf - we actually did the depreciation numbers on the base highlanders. They actually depreciated at such a slow rate on base models we were losing less per year than buying 2-4 years old. – blankip Jan 14 '15 at 21:12
  • @blankip: Then obviously you buy one that is older than that! FYI, I drive an '88 Toyota pickup which I bought about 6 years ago. I would not be surprised if it outlasts me. – jamesqf Jan 14 '15 at 21:21
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    Isn't private financing the same to the dealer as cash? Either way he gets the full amount up front. My last car I contacted a dealer with my own financing lined up (through a CU). I contacted through email and offered WAY below TrueCar for the car I wanted, in fact I offered 3% below invoice. They responded in 5 minutes and said yes. I drove in that night and after signing the papers asked him "how was this negotiation so easy?" He just shrugged and said it was the end of a bad month and he had numbers to meet. – The111 Jan 15 '15 at 8:27

Ditto other answers, but I'd add there's a lot of psychology going on in a sale. If you're paying cash, you presumably have a pretty fixed upper limit on what you can spend. But if you're getting a loan, a large increase in the price of the car may sound like just a small addition to the monthly payment.

Also, these days dealers often try to roll "extended warranties" into the loan payment. Most people can't calculate loan amortizations in their heads -- I'm pretty good at math, and I need a calculator to work it out, assuming I remember or wrote down the formula -- a dealer can often stick a piece of paper in front of you saying "Loan payment: $X per month" with fine print that says that includes $50 for the extended warranty, and most people would just say, "oh, okay".

  • I agree with this. First I am not sure any dealership makes money off of loans, unless they are counting on adding on a warranty or whatever to a percentage of people applying. I have friends that work with banks and at most dealers are getting $50-100 for finding the loan. The interest rates are too low now for banks to pay more. (Maybe 20 years ago the model was different) I can say unequivocally I have helped friends negotiate and I always get TrueCar low - and they get financing. Paying cash myself, I am always under TrueCar low by far. – blankip Jan 14 '15 at 22:03

In the UK at least, dealers definitely want you to take finance. They get benefits from the bank (which are not insubstantial) for doing this; these benefits translate directly to increased commission and internal rewards for the individual salesman.

It's conceivable that the salesman will be less inclined to put himself out for you in any way by sweetening your deal as much as you'd like, if he's not going to get incentives out of it. Indeed, since he's taking a hit on his commission from you paying in cash, it's in his best interests to perhaps be firmer with you during price negotiation.

So, will the salesman be frustrated with you if you choose to pay in cash? Yes, absolutely, though this may manifest in different ways.

In some cases the dealer will offer to pay off the finance for you allowing you to pay directly in cash while the dealer still gets the bank referral reward, so that everyone wins. This is a behind-the-scenes secret in the industry which is not made public for obvious reasons (it's arguably verging on fraud). If the salesman likes you and trusts you then you may be able to get such an arrangement.

If this does not seem likely to occur, I would not go out of my way to disclose that I am planning to pay with cash. That being said, you'll usually be asked very early on whether you are seeking to pay cash or credit (the salesman wants to know for the reasons outlined above) and there is little use lying about it when you're shortly going to have to come clean anyway.

  • Source: close friend is a car salesman at a well-known dealership

If you buy a car using a loan, the dealer gets benefited by the financing institution by the way of referral fee - if the dealer has helped in financing the purchase.

Otherwise for the dealer it doesn't matter if one pays in full or through financing. The dealer is paid in full in either cases.

Hence the dealer may slightly get disappointed that you are not taking a loan.

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