auto

Paying cash for your new car


If you had the money to spare, would you pay for that hot new car with cold, hard cash?

Art Spinella, the president of CNW Marketing/ Research says that 7.7 percent new car buyers did just that in 2001.

"It's a good feeling. You pay for it, and you're done. And you're done forever," says Mari Adam, a certified financial planner in Boca Raton, Fla.

"It's nice to pay cash. You own it, and nobody can bother you."

There were plenty of no-worries car customers in the 1950s. Back then, about one-third of all car buyers paid cash. There weren't nearly as many financing options in those days. And lots of people preferred paying with cash.

"The attitude was such that you didn't buy something unless you could afford it. And you couldn't afford something unless you could buy the whole thing," Spinella says. "You saved the money up first."

When cash is not an issue
Many of today's cash buyers are affluent shoppers with affluent tastes. They may be buying their third or fourth vehicle and they just don't see the point of monthly payments. Saving is not an issue with these folks. They have plenty of cash available -- at all times.

Cash purchases accounted for 20 percent or more of the sales transactions at Jaguar, Land Rover, Mercedes and Porsche in 2001.

Paying for a car with cash may feel good, but is it a sound financial move? It can be, but you should definitely look at other options first.

Look at other financing deals
There are tons of low-rate financing deals available. Just about every major auto manufacturer is offering some kind of rock-bottom financing deal.

You'll need squeaky-clean credit to qualify for the absolute lowest rate. But it's certainly worth checking out. You never know what you'll get.

"If they make you a deal that's too good to be true, of course, borrow," Adam says. "If someone is willing to give you money for nothing -- take it."

One of her clients was prepared to pay cash for a car until he learned that he qualified for a 3.9 percent financing rate. He was earning more than that in his money market account. So he took the financing and kept the cash.

What if you don't qualify for a super-low rate, should you go ahead and pay cash? Look at your other finances, first. If paying cash for a car will tap you out, don't do it.

"Make sure you have other cash resources available equivalent to three months living expenses," Adam says.

Save the cash for last
Auto shoppers keen to pay with cash should keep that information to themselves. Don't tell the dealer until the last possible moment.

"Cash is actually trash to a car dealer," says W. James Bragg, author of Car Buyer's and Leaser's Negotiating Bible.

"A car dealer makes just as much money on the financing as they do off the selling of the car."

A dealer gets a cut of the profits on all loans arranged at the dealership. He won't be happy to hear that you're paying with cash. So tell him after you've negotiated a fair price on the car and after you've checked out those rock-bottom financing rates.

Many dealers will want to talk to you about financing from the get-go. Don't let them. Focus on getting the best price on the vehicle. Save the financing talk for later.

If you don't qualify for a loan with a super-low rate, tell the dealer that you'd rather pay cash.

"Negotiate the price first. It's none of their business how you're going to pay," Bragg says. "If you tell them you're going to pay cash, they'll go for a higher price on the car."

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-- Updated: Jan. 25, 2002

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