Buying a car with cash

Buying a car with cash means you won’t have to pay interest and fees on a car loan. Plus, you’ll fully own the car when you drive it off the lot. But you’ll need to consider more than just the sticker price when determining the total cost of the car.

Do car dealers accept cash?

Although there’s no law prohibiting it, many car dealers don’t accept cash. There are several reasons for why buying a car with cash is difficult to pull off:

1. It’s uncommon.

For starters, reputable customers typically don’t pay in cash. While there’s nothing inherently criminal about making a large purchase with cash, criminals often prefer to pay in cash because it’s quick, anonymous and not easily traceable. Buying a car with cash doesn’t give sellers access to buyers’ personal banking information or financial history — which is helpful for people who have something to hide. Car dealers may be cautious with cash purchases to avoid handling “dirty money.”

That being said, if you’re thinking of how to buy a car from a dealer with cash, there is some wiggle room. To start, you may find a dealer who’s willing to accept cash up to a certain amount — say $5,000-$10,000 — after which, you’ll have to pay by card, bank transfer, cheque, or financing.

2. It’s more complicated to handle.

Cash must be counted, securely stored and manually deposited at a bank. So do cheques and money orders, but these are safer to carry around because only the person/business to whom the cheque or money order is made out to can deposit it. Credit payments, debit payments and electronic funds transfers are settled digitally and don’t require dealers to handle physical money at all.

3. It’s easier to steal than digital funds.

If you’re buying a car with cash, handling large amounts of money could tempt employees to grab funds and run. While car dealers may not expect their employees to commit theft, it’s safer to keep on-site cash to a minimum or only deal in electronic funds, especially when vehicle purchases can run in the tens of thousands of dollars.

How to buy a car from a dealer or private seller with cash

Follow these steps to get the best deal when buying a car from a dealer or seller with cash. The same guidelines apply for both, but if you’re buying a car from a private seller with cash, you won’t have an option to trade in.

1. Start saving up.

If you don’t already have the money on hand, start setting aside money from each paycheque for your new car. You might want to consider opening a high-interest savings account just for your car savings. You’ll collect interest on the money you deposit and won’t be as tempted to touch the funds.

Having trouble figuring out how much to save? Budgeting apps like Mint can help you figure out how much money you can afford to set aside and track your progress.

2. Research cars.

If you don’t already have a specific car in mind, think about what you’ll need to use it for and go from there. Is it only you or do you need to drive your family around? Do you use it to get around town or are you interested in long trips?

Consider these questions to narrow down the type of car you’re looking for. Also, weigh whether you want a used car or a new car. Used cars often cost less and lose value at a slower rate than new cars, but you’ll have fewer options to choose from and typically have a shorter warranty.

3. Calculate the total cost.

Once you have a car in mind, research how much you need to have saved up to avoid financing. Consider the following costs when buying a car with cash:

Add all these costs together to come up with a goal for how much to save before you get started. If you’re thinking about how to buy a car from a private seller with cash, scope out used car listings to find the ideal vehicle for you.

4. Calculate your current car’s trade-in value.

If you already have a car, you can often trade it in at a dealership to reduce how much you have to pay out of pocket. You can get an estimate of how much your car is currently worth by visiting sites like Canadian Black Book and autoTRADER.ca. The car’s value is based on factors like its make, model, mileage and where you live.

You can subtract the trade-in value from the total cost of your new car if you plan on buying from a dealership.

5. Negotiate with the dealer or private seller.

Once you’ve saved up enough money, visit the dealership or private seller to negotiate a deal on your new car.

• Negotiating at a dealership

  Keep the conversation around the price of the car, rather than financing. Avoid mentioning that you’re paying up front in cash. Dealers sometimes offer better deals to customers who pay with in-house financing because they can make money off the interest.

  If they push you on financing, give a vague answer. Only tell them you’d like to pay in cash once it’s time to pay for the car.

• Negotiating with a private seller

  In this case, you can be up front about buying a car with cash since most private purchases are made this way. But make sure you’ve done some research on the value of the car you’re interested in.

  Familiarize yourself with the price, how fast it might depreciate and check it out for damage. Having this information can help make sure you’re getting a fair deal on your car.

6. Pay for your car.

Once you’ve negotiated the price, it’s time to make the purchase. Buying your car with a cashier’s check is generally more secure than paying in actual cash — and a lot less of a hassle. Some dealerships don’t accept cash over a certain amount — and a cashier’s check gives you a record of the payment. You can get a cashier’s check by visiting your bank. Most charge a small fee, typically around $10 or $15. These can take a couple of days to process. If you want to pay your dealership faster, consider a wire transfer. These are typically more expensive, but can get the money to the seller the next day.

Traveling with a lot of cash can also pose a safety risk. The government may even choose to investigate large hard-cash purchases, requiring you to show a detailed history of where you got the money.

Finder survey: When applying for a vehicle loan, which factors matter most to Canadians of different ages?

Four tips for buying a car with cash

Make the most of your loan-free car-buying experience with these pointers:

1. Arm yourself with knowledge. The more you know about the car you’re interested in buying, the more likely you are to negotiate a better deal. Do some research the night before to make sure your numbers are up to date.
2. Ask about rebates. Many dealerships offer discounts on financing — which are no good to you as a cash buyer. Instead, ask about rebates and other discounts available when you’re negotiating.
3. Don’t mention trade-ins right away. Dealerships often have limits to how low they’re willing to go on the price of a car. Mention the trade-in up front and they might factor that into the total price, giving you a worse deal.
4. Avoid paying with cold, hard cash. It can be dangerous to ride around with that much money, difficult to withdraw from the bank and you won’t have a detailed transaction record.

Related: Best car loans in Canada

Should I buy a car with cash or get an auto loan?

On one hand, financing a car and making your payments on time can improve your credit score. It also means you don’t have to pay as much up front and can split the cost of your vehicle up over smaller, more manageable payments. Additionally, you could potentially save if you invest the money you would have spent on the car, since investments earn interest.

But on the other hand, you can save a lot of interest fees if you buy a car outright with cash. Plus, the money you would’ve spent on car loan payments can go towards other things like car repairs, gas or insurance.

Pros

• You won’t increase your debt load
• You’ll pay less for your car (besides saving on interest, you may be able to land a special deal for paying the full cost of your car upfront)
• Can dedicate more room in your monthly budget for other expenses besides a car loan
• Avoid the temptation of “buy now, pay later” and the possibility of getting stuck in a cycle of debt
• Requires you to think responsibly about how you want to spend your hard-earned money

Cons

• Costs more upfront
• Won’t improve your credit score, so you can qualify for other credit products like personal loans, mortgages, credit cards or other car loans.
• Harder to afford vehicle modifications and upgrades, because you have to pay for it right away. With a loan, you could spread this cost out over time.

Related: Should I buy a car with cash or a loan?

How else can I pay for a car without long-term financing?

While buying a car with cash isn’t the most feasible option, if you don’t want or need to get a loan to pay for a car, you can also consider the following:

1. Increase the daily spending limit on your debit card.

Most banks will increase the spending limit on your debit card at your request. If you can’t increase your limit, you may be able to get permission to put through a single transaction above your usual debit limits. You’ll likely only have a narrow window of time in which to conduct the transaction (such as an hour), so it’s wise to submit this request to your bank when you’re at the dealership and ready to pay. Make sure you check with your bank beforehand to see if this is even an option. And remember to get both your daily spending limit and transaction limit increased to avoid delays.

2. Pay with a certified cheque or money order.

If you have cash to pay for a car, consider depositing it into your chequing account and then writing a cheque or getting a money order made out to your dealership. Ask your dealer in advance whether these payment methods are acceptable, and if so, what information to put on the cheque or money order.

3. Get financing and pay it off immediately.

You may not need a loan, but if your credit is good enough and you meet lenders’ other requirements (minimum income, history of making debt repayments on time etc.), you could still get financing and pay it off immediately afterwards. Make sure that there are no penalties for paying off your loan early. Keep in mind, some dealerships offer zero interest car financing on vehicle purchases so you don’t have to worry about paying interest on your car at all. However, 0% interest financing has some drawbacks.

4. Pay with your credit card and pay off the balance immediately.

If your credit limit allows for it, you can even pay for your car purchase – or a large portion of it – with your credit card and pay off the balance once you get home. In some cases, you may even score a zero percent interest promotion on a new credit card or a haul of credit card rewards points for making a large purchase on plastic.

How much should I spend on a car?

Some experts say you should spend about 1/3 of your income on all forms of debt repayment, including car loans. Assuming you have no other debt and make $5,500 a month, this means that you could spend up to $1,833 on car loan repayments. But if you have a $1,100 mortgage payment and $60 credit card payment to pay each month, the amount goes down to $673.

Other experts advocate the 20/4/10 rule where you make a 20% down payment on your car, pay back your loan in 4 years or less and not let your car payments exceed 10% of your income.

Bottom line

Consider the total cost of your car — and the trade-in value of your current vehicle — before you set out to buy a car with cash. And go into negotiations as an informed buyer to get the best deal.

You can read more about how it all works with our guide to buying a car.

Frequently asked questions about buying a car with cash

• Is it better to buy a used or new car in cash?

  It depends on how much it costs. Generally, used cars cost less, so it might be easier to afford the total cost than buying a new car.

• Can I pay for a car with a debit card?

  It depends on how much the car costs and the seller’s policies. But your car will likely cost more than your debit card allows you to spend in one day, which is why cashier’s checks are a more common choice.

• Can I use a personal cheque to pay for a car?

  It depends on the seller. Generally, dealerships and some private sellers don’t accept personal cheques for large amounts — there’s too much of a risk it’ll bounce. A money order is usually a safer choice for all parties.