Financing vs. Paying Cash For a Car: Which is the Best Strategy?

“Is Financing Your New Car the Right Choice?”

Have you ever found yourself in a situation where you have enough cash on hand to pay for a new car in full but the dealership is offering you a much better price if you finance the car? If so, you may be wondering whether there is a catch or other things to consider before making this decision.

According to conventional wisdom, paying cash for a car would enable you to negotiate a better price. However, the world has changed, and dealerships have changed as well. Ten years ago, dealerships would make around $800 on the sale of a car and $500 on the financing. Today, they will make approximately $400 on the sale of a car but close to $1,000 on financing. This shift in profit means that most dealerships have turned from a product sales place to a financing arm of the product they are selling.

So, how can you turn this into a positive for you in the car buying process? Consider negotiating the purchase price first, then the trade-in, and finally, how you will pay for the car. Don’t tell the dealership how you will pay until the very end of the negotiation. If you have cash, the dealership may not give you the same deal as they would if you financed the car. In fact, the dealership may offer you a better deal if you let them finance the car and agree to keep the loan open for a certain period of time. This is because they will make a profit on the financing.

For example, a sales manager may offer to take $1,000 to $1,500 off the purchase price if you let them finance the car, with the understanding that you will pay it off quickly. The sales manager may ask you to keep the loan open for four months and make the minimum payment during that period to keep the loan in good standing. After the four-month period, you can then pay off the loan in full and get a better deal.

In conclusion, financing your new car may be the right choice, especially if you are offered a better deal. Just be sure to negotiate the purchase price, trade-in, and financing in that order and understand the terms and conditions of the financing agreement.