Paying Cash for a car. You CAN do it!
Jill, Tawra and Mike – your guidance has helped us again!
My husband and I just bought a car and paid cash for it and let me tell you it was the most pleasant car buying experience I have ever had in my life. The people at the dealership were great, no pressure at all. I’d prefer not to say which one we got, but it puts one in a great bargaining position price wise and you don’t have to haggle back and forth and worry about a financial albatross around your neck for the next 8 to 10 years.
As you often point out, so many people say they can’t pay cash for a car and they have to use credit. I say you don’t have to get caught up in that mess. You pick out what you want and hand over the money and off you go. My grandparents always did this -They saved and bought their homes and cars (which were always nice ones) for cash.
Be frugal like your website says, save the money and pay cash! I have said this before and it’s the truth – It’s the best feeling in the world to walk out of the dealership knowing that you own it free and clear!
We commuted to work together for almost two years to save money on gas, and still do because we work in offices five minutes apart. We have no debt at all thanks to hard work and your great advice.
Kind regards,
Kathy E.
California
Jill’s Reply:
I always like hearing our readers’ testimonies because it helps to show we are not wackos when we make statements like. "You can pay cash for a car." The things we suggest are not impossible.
Here are a few tips to keep in mind when it comes to buying a car:
Start saving now for a car even if yours is running fine. I don’t have a lot of different savings accounts but I do consider things like the fact that my car is getting nearer to the end of it’s useful life. I know it may not be long before I lose it so I am saving little by little now so I will be prepared if it dies.
If you have a child who is 13, it would be good for you and the child to start saving a little now for the car they will need to drive to work when they turn 16. We get so stressed about saving for big things like college education that we sometimes forget about the more practical things.
Don’t buy an expensive car that is more than you can afford. Most people go car shopping and just pick out the one they want, whether they can afford it or not.
It hasn’t even entered their minds that if they borrow $36,000 for a car, that means they will have car payments of about $360 a month. They could have saved that same amount for five months and bought a car for $2000 for cash.
Stop justifying why it is okay to buy an expensive new car. I have known one woman for many years who loves fancy new cars. Every time she starts thinking about getting a new one she starts listing all the reasons she should get new one rather than a used one, all of which aren’t true.
She likes to say things like, "They get better gas mileage." My 20 year old car gets better gas mileage than most of the new cars my friends own, except my dad’s new Prius. We just sold our VW Bug which was 50 years old and got as good, if not better, mileage than the Prius.
Often, people like to say that a new car won’t break down as much as a used car. That’s just not true and even with major breakdowns like Tawra and Mike had with one car, they still came out thousands of dollars ahead buying a used car. When you buy a used car, try to buy the car with the least miles on it and, if possible, have a mechanic check it out before you buy. Even if you pay the mechanic to look it over, you’ll still be way ahead!
Some people look over a new shirt when buying it more carefully than they do when buying a car. Then they wonder why the car has so many problems. That doesn’t mean you still can’t have something go wrong but you can reduce the likelihood of experiencing lots of major problems. Use common sense!
Take your emotions and your wants out of the picture and buy only what you can afford. If you can’t pay cash, you can’t afford it!
Photo by: jason_burmeister
Really like this article, because I just watched my daughter buy a brand new car last week. She had a trail blazer which got terrible gas mileage. So I could understand looking for something better. But I also gave some other advice:
1. Don’t be in a rush. Look for awhile. And pay cash.
2. Don’t drive so much. She lives less than a mile from work. She goes there 5 days a week. Our church is about 3 miles from her house. She goes there twice a week. Some weeks only once. I suggested she give up driving three times a week to the gym, it is about 7 miles or more. Not only would she save on the gas, but she’d save on the gym membership as well. The bank and grocery are in the same neighborhood as her job, so about a mile from home. So as you can see, cutting out the gym could save a lot of gas.
But she is young and when she makes up her mind to do something, she does it. So now she had 6 years of car payments to make! Yes, 6 years! I know it is difficult to break the cycle of car payments,but it can be done. I went to the lot with her one afternoon last week, and saw some real pretty cars. I have a 2003 Buick Rendevouz. It has 83,000 miles on it. I have enjoyed it so much, I though I might like the Buick Enclave for my next car. They had a 2008 with 88,000 miles and were asking around $18,000 for it! So as you can see, my car is paid for and has less miles, so why would I buy the Enclave? If you need a new car, take your time to look, research the models you are interested in, and don’t buy more car than you need. Who really needs an Escalade?
I drive a 2002 Honda Pilot with almost 100K on it. Best car on the planet and yes of course I own it. The great thing about this car is that I have had nothing go wrong with it and it has an optional 3rd seat for driving my son’s sailing team around. I can get 8 people in my car! At my 97K mark I spent $1500 and had the entire car serviced from top to bottom, better in my opinion to spend the money to keep my excellent older car on the road than to buy a new one.
congrats on ur daughter getting a new car .. :D ..
I have heard you mentioning paying cash for our cars for a while now… but that was before we purchased a car that we are now upside down on. Do you have advice for us who are still making payments each month? I think in our situation it is best to pay off the loan and then buy the next car for cash, right? Any advice for the foolishly immature?
Don’t feel bad Anna we all have been foolishly immature at some point in our life. Trust me I wasn’t born knowing all the suggestions I give and have had to learn some of them the hard way. When we first were married we bought a vacuum cleaner which cost almost a months wages. It had a lifetime warranty and when it died a few months after we bought it we found the company had folded so we were a couple of years paying off a vacuum cleaner we used just a few months.
Live and learn. My hats off to you because you show great wisdom and maturity for figuring out and acknowledging that maybe you goofed on this one. But that’s okay you seem much smarter for it. You are right though probably your best bet will to get it paid just as soon as you can because it is just adding salt to the wound to pay a bunch of interest on it.
One word of advice though make sure you have enough insurance on the car to cover the loan and not just what the car is worth. I know a couple who bought a new car and totaled it shortly after buying it. The insurance only gave them what the car was worth and they spent a long time paying on the rest of the loan for a car they didn’t even have any more.
My parents always paid cash for their cars, and when I first got a car (while in college), I was able to get it with cash. My husband paid cash for his college car as well, although he sold it before we got married. Now, we only have one car (the one I got in college), and it’s *wonderful*. It gets way better gas mileage than lots of new cars, runs well, and the only major problem I can imagine it having in the next 5-10 years is that we’re planning on having another child, and you can only fit one car-seat rear-facing in the car (it has to be in the back middle).
So, we’ll probably be looking to replace the car in the next year or so, but we’re definitely going to be buying used and paying cash again. (We’re also going to bring my dad with us, because he knows cars, and is really good at haggling!)
Thanks for the advice Jill. We did buy “GAP” insurance when we bought the car, and the dealer said that this was to cover the difference between the loan and the value of the car if it did get totaled. However, now I know if I need GAP insurance at all the car way is out of my leauge.
Smart thinking Anna. Good point about the insurance. Like I said earlier you may have made a boo boo with this car but my hats off to you because you are a quick study and you are certainly headed in the right direction.
RE Paying Cash for cars
When my old car began to deteriorate I began checking into car loans at my bank. After hearing how the process worked,and not wanting to be a slave to payments I was convinced I’d be better off saving for a car. So I began a savings program of putting away $50 out of every paycheck, tax returns, birthday presents, Christmas presents, holiday pay and a small inheritance from my mother when she passed. After three years I had enough to take half of the savings and buy a car. The dealership I bought my current car has an excellent reputation, and the salesman I bought the car from was a former supervisor of mine at a previous job.
I found my car by accident on the dealer webpage one night after I came home from work, the next morning the previous car had leaked fluid all over . I said enough, drove the car down to the dealership and found my salesman. He showed me the car I was interested in, at first I didn’t like it, there were two other cars that were cheaper, but not in good shape. He would not sell me the other cars and insisted the car I was interested in was for me. We took it out for a drive, it drove well despite a few minor issues. Not only that, it was on sale and with my trade in we brought the price to little over $2100. With the repairs, license, and taxes, the final cost came under what I had budgeted by $200. The best thing about paying cash for cars is that there is no monthly payments, no worrying about how the payment is going to be met if money’s tight, and the car can’t be repossed if payments are not made. The discipline it takes to save diligently can be done, and there is such a sense of accomplishment and pride for your work.
I was in a pinch when I bought a used 2007 Honda last December. I was not able to pay entirely with cash, just a hefty chunk so the payments would not be so high. Now I wonder: will it save me money in the long run if I pay more than is actually due every month? I have 6 years of payments @ $250/month. Thanks for your help.
How much are you paying in interest? Add up the interest and how much you would save if you cut those interest charges and then you will know if you will save or not.
We always pay cash for our cars. We have one that is a 91 and definitely on its last legs but we know we have gotten our moneysworth out of it. We were given the car but have had to put about $1000 into it over the last 3 years on maintenance. It currently has 249,000 miles on it. Since my last Dodge made it to 300,00 miles I have a goal. Meanwhile my husband and I save to buy our next “new” car. We also have a 96 mazda and a 2001 Dodge (given to my son by his older sister that we have as back up cars). We have never paid full price for our cars and still managed to get great deals. We walk whenever we can and commute via public transit whenever possible as well. This all helps to save wear and tear on our cars and keeps our budget secure.
My father always paid cash for a car. He would have money taken from his check at work and put into US Savings bonds and then when he had enough and if we needed another car he would cash them to pay for the car. He used to say if they take it from your check you never miss it. I learned many ways to stretch money from my father who used to say that if anyone could make a budget work it was his daughter. When I first started working, we had the ability to have the credit union take some of our money for savings and the bond program also, so I followed in is footsteps, being single at the time, I was able to use both means for savings.
I have a 1992 toyota corella that I bought as a program car in 1992, it just meant that it was a car that a sales person had used and it had very few miles so basicly it was new, anyway when I bought it I payed cash for it. (I had saved for a long time)I am still driving that car today!
Ijust bought a 2002 Mercedes C240 one owner vehicle with 175k on it for $3k. The blue book was much higher. I have all of the records since the car was new. I had been saving for a car and ended up with this one which was less than what I’d saved. I was not in a hurry and just placed a notice out on my Facebook page that i was in the market for a car with better gas mileage than our big truck that gets 11 mpg. I took this vehicle to have it checkd out at an independent mechanic and they ran diagnostics on it. There is NOTHING wrong with this vehicle and they said if I continue to take care of it, it should go another 175k!! Now that is a deal. No debt, a nice car, better mpg, and we actually SAVED $$ on our insurance by adding this car because we got the multi car discount which we didn’t have before!! :) AWESOME!
We have a 2008 envoy…bought in 2009(used…lease buy back or something) with only 13,000 km on it…it is paid off and I hope to run it into the ground until 2020 lol.We are also putting away 300.00 a month in our new ‘old’ car fund…so in 8 years there will be a nice amount to buy with. We will never buy new again. We rather retire at 60 and enjoy the sweet life.
I generally drive my cars “til the doors fall off”. my last one was a Honda Civic 2000 that was starting to cost significant repair money, (170K miles). I paid it off in 3 years and saved as much of the monthly payment as I could. I put that down, traded my car, and took the smallest payment I could get, which I will double and pay off quickly.
I took my time and checked out my dealer’s website frequently til I found a 2007 Honda CRV that had great mileage that I could afford. (I never buy new!)
Unfortunately with gas going sky high, this car will be more expensive to run, which means I’ll be mega careful about driving too much, i.e., all my errands in town will be done on work days (when I’m in that town), not on Saturday! that’s what lunch hours are for!
No car payment is just the most freeing experience!
My son is 22 and getting married in June to an international girl. They both are living debt free and are planning their wedding debt free. He drives an OLD small truck that breaks down a lot. But when people hear about their plans to be debt free they are willing to help them repair things. She has given up many wedding plans to stay out of debt. Most wedding plans are to impress others–not to help the couple. While we feel sorry for them and have done what we can to help, we are proud of them!!
Thanks for the input! My interest on the payments is just over $1100. That’s enough for a few car payments. I need to re-work my budget.
We’ve been retired from our Positions 23 years and have tried to be very frugal, even with three Children. We have followed much of your teachings throughout the years. Before we retired, we were able to payoff our home, buy an automobile and a Truck, paying Cash for each. We purchase a new Car every 6 years, after we have saved the equivalent payment every month for this purpose, so that we can pay cash avoiding paying any interest. We use one credit card for all Purchases, that accumulates 5% toward GMAC Vehicle. We pay full Balance of Credit Card in full every month. 2010, we had $2800 toward a
new Cadillac. We buy Cadillacs because they use Regular Gas,use less gas per mile, have a 5 year Warranty and 100,000 mile guarantee, so all we have is maintenance to pay. As we are in our 80’s, we scaled down to a smaller Cadillac, as we do not take trips nor drive as much anymore.
We bought a new Mazda 3 a few years ago. We got 0% financing for 5 years. I wasn’t thrilled about the 60months but liked the 0% cost to finance. We have only 1 vehicle.
I’ve just gone full-time with my own business and will need my own transportation within the next year or so. We’re in the process of adjusting our lives to my working from home and having an unsteady income for the moment. The idea of saving money now to look for a good used car I’d pay cash is a wonderful idea. Merci beaucoup!
PS I live in New Brunswick, Canada on our beautiful east cost.
I’m new to this and I have a question about paying cash for a car. How much below the MSRP can you expect to get for a cash purchase? Is 15% of the sale price about right?
Cathy I don’t know for sure. We have never bought a brand new car. I think you are to look up the invoice and then pay a certain amount over that but am not sure how you find that or anything. Maybe one of our readers will know.
I have only had 2 cars since I have been driving (since 1995). I paid cash for both. The car i’m on now, I paid $1500 for it. It is still running with 225K miles on it. I have however found one small downside to paying cash. My insurance company told me I don’t get the best rates because I don’t have a payment history on a car loan. Personally I think that is really stupid. Why penalize someone for not going into debt??…… anyway, I will pay cash for my cars, it is cheaper in the long run…..nothing wrong with used, they just come to you with “personality” :)
Jamie most insurance companies I have used have not done that. It might be worth it to check into another company. When we first were married I thought you used one company and stayed with them forever but over the years have found you can change and usually I have gotten a better deal and often service. There are enough companies out there that if yours isn’t working with you and your situation there really isn’ t any reason to stick with them.
We own a minivan and a pickup truck, both paid for. We bought the van through a loan but payed it off early. We sold our car that my husband was driving to work and payed for a truck from my brother in law with cash. It’s so nice being without a car payment. We sometimes take it for granted, but our goal this year is to pay a car payment to ourselves and save up enough to buy our next vehicle with cash, too. I have vowed to myself that if one of our vehicles dies, we will go with one vehicle until we can pay cash for the next.
Good advice. I once took out a car loan b/c I was in a pinch and needed a good car fast. I scrimped and paid extra, so I paid off a five year loan in under 3 yrs, saving a bundle in interest. My husband and I buy used vehicles and have paid cash in the past. We are in a spot now b/c we will need a larger vehicle to fit yet another carseat in a few months. We have been saving, but did not plan to replace a vehicle for a few more years, so we are short a bit. We have done our research and can buy a larger used van for not too much more than we can get by selling my husband’s car. So, if we have to get a loan it will be small and we can pay it off quickly. The big van has terrible gas mileage, but we need the seat space and the van is waaaaay cheaper than those big SUVs and has more seats! Most vehicles just don’t have space for five or more carseats.
I wish I read this article. I am stuck in a lease and trying to live a very , very frugal life. The car I bought was 1,500 I really dislike when dealers haggle customers because they want to stick with you and pinch you with the shiny new toy it is awful. If, I could save enough money to purchase my next car I will.
The first car I had ever purchased was 1,500. The new car I just got is worth around 18,000. Just wanted to clarify.
Tara and Jill,
I enjoy your videos immensely! Please consider doing a video about the process you follow when looking and buying a used car. To some folks it sounds overwhelming to go through the effort. For them it seems easier to just go to a Car Dealership and let them do all the work!
Thanks for all you do to improve people’s lives, we appreciate your help!