Can anyone think of a reason why you would finance a car if you have the cash available?
Well, it might help build your credit rating, but if you have that much cash on hand, that might not be an issue.
If you were trying to rebuild or establish good credit rating - if you have absolutely nothing in a credit report [like a recently divorced woman or uni student] it can oddly enough be difficult to get credit [or at least it used to] so you simply get a car loan through your bank, and you have credit [just leave the money in and have them deduct the monthly payments.]
You also attract attention paying for things with cash. I know there’s a $10,000 mark that requires the dealer to report the transaction to the feds; they’re concerned about money laundering and such. I presume that this includes checks, as well as someone just showing up with a pile of bills.
I’m less sure whether this is a big deal or not (assuming you’re not money laundering). I imagine not. I know my grandmother had the report done on her when she bought a car, and she hasn’t been whisked off to Gitmo or anything.
YET…
My little brother has gotten great deals on cars by being knowledgeable and paying cash. He would walk into a dealership and point out the car he wanted. He would then sit down with the salesman and count out money onto the desk. That was how much he was willing to pay for the car, and he knew that he could get the car for that much. If the salesman tried to dicker, my brother would pick up the cash and walk. Nine times outa ten the salesman would stop him and agree to the sale.
The last time he did this was the late 90s, I dunno if it would fly today.
Always nice to have a reasonable cushion of cash on hand – you never know when things are going to go all funny-shaped. If I had, for example, $20K in the bank and wanted a $20K car (sadly, not an unusual number for even a used car nowadays), I’d be somewhat reluctant to pay the whole thing in cash and zero out the bank account.
If you can get an extremely low interest car loan (which sometimes happens when they’re desperate to move them), then you might be able to earn more investing your cash elsewhere, even if you are paying interest.
The 10K limit is no big deal. They report it to the feds, but that doesn’t mean anything is wrong or unusual. If you are depositing 10K in cash every week then you might have a problem. But it’s common for all kinds of people to deposit the occasional large amount due to unusual circumstance like buying a house or car. This isn’t a big deal.
To answer the OP: What else do you need the money for? If I’ve got $15,000 and that’s my only money in the world, I’m not going to spend it all on a $15,000 car. I’m also certainly not going to break into my retirement accounts to finance a car no matter what.
Having said all that, it is of course better to pay cash than finance a car. It saves money on interest.
Look at these two scenarios:
Option #1.
I save for four years to buy a $15,000 car.
I’ve got 0 dollars saved now, so my present value is 0. My future value is $15,000 because that’s my goal. I’m expecting to invest in a safe bond fund that will return me 4% annually. (.33333% per month)
Cranking these numbers means my payment is $289 per month. The total amount I’ll end up paying for the car is $13,857, the rest will come from interest on my savings.
Option #2
I buy a new car today and finance the $15,000 price.
I’ve got a present value of $15,000. My future value is 0 because that’s what I’m paying it down towards.
This time the rate is higher, say 6%, and now I’m paying it instead of making it.
Cranking these numbers means my payment is $352.28 per month. The total amount I’ll end up paying for the car is $16,909.
In both cases, you’re simply making payments for four years to get the car. The only difference is that in one case, you make money from interest, and in the other you pay it. The only thing left out of the equation is discipline. That’s the tricky part. 
The document you’re thinking of is a CTR. That standards for Currency Transaction Report. Checks are not currency, thus a man paying for a $120K Mercedes sedan with a check cannot have a CTR filed for that transaction.
If a financial institution aware of this transaction feels that such an individual’s behavior is suspicious, they may choose to file a SAR, or Suspicious Activity Report.
Finally, if you’re paying for a car worth buying for much more than parts value, you’ll probably want to pay for it with either a cashier or teller’s check. Some car dealers get nervous about parting with a vehicle and then having the potential for the check to bounce. YMMV, but I suspect the worse the area and the nicer the car the more paranoid they’ll be.
a wise investor could make more money by taking out a car loan and investing the money.
once you buy the car, its value only decreases. if you invest that $20k, you should be able to turn it into a profit that would pay the loan’s interest and then some.
Good point. For example, right now, GM is offering 0.0% financing on a lot of their 2005 models. Most of these are for 3- or 4-year loans, but a few models are available at 5 or even 6 year loans at zero percent.
Buy the car at zero percent, and stick the cash you’d have bought the car with into a 48-month CD at 3.6%.
A fallacy was noted in a book on math illiteracy (innumeracy?) called, I believe, 200% of Nothing.
It related the real-life incident of a car salesman as he tried to convince the author not to purchase the car in cash, but instead to save or invest the money and take out the loan. He produced calculations similar to the above about interest accumulated by that $15,000 over the life of the loan compared to the amount the loan would cost.
It’s an interesting theory but, according to the book, the car salesman glossed over an important fact. There’s nothing stopping you from buying the car today with your savings and putting that $250/mo car payment in the bank anyway. At the end of what would’ve been the four-year loan, you’ll have $12,000 plus interest accumulated, and you’d have the car, and you wouldn’t pay interest on a loan; in addition, you’d have the same amount per month to spend from your paycheck as if you had taken out the loan.
I do not have the book and its calculations in front of me, but it’s well worth a look.
I paid cash many years ago for a car, and have traded in every three years since, paying a cash difference of about $5,000 each time. This works out to a continuing payment of about $138/mo (the money needed to set aside to equal $5K in three years). However, it’s all principle and no interest and my car is always under warranty.
This is the main reason. The other is liquidity. Let’s say you have $21k in the bank, and want to buy a 20k car. You then are cash poor. What if an emergency (say, Mom needs $5k for surgery next month), you have the money.
If you aren’t talking just theoretically, I’d need to do a full analysis of your finances to answer. For example, if you have a hefty amount of cash, and a track record of return on equity better than the interest rate on a car loan, better to finance the car. Sometimes carmakers offer cut rate loans to move inventory, like at the end of a model year. Thus put cash in bank, finance car, and pay car payments from that bank account. You make money AND build up good credit.
If you’re buying new, you might want to check your state lemon law. If you finance
through the dealer and get a lemon you may have the option of discontinuing payment
until the vehicle is satisfactorily repaired, or replaced.
If you pay cash, or arrange your own financing, you forfeit this option.
Rule of thumb:
There’s no such thing as a 0% interest loan from a car dealer. They may loan you the money if you agree to the list price. If you pay cash you will be able to get the car for a much cheaper price. The difference in price is the interest on the loan.
Um, there’s one other difference. In one case, you have the use of a car for the next four years, and in the other, you’re taking the bus that whole time. That’s the whole reason for buying a car.
It should be noted that “paying cash” for a car rarely means hauling a sack of twenties to the dealership. It is usually taken to mean paying with a check (or sometimes a credit or debit card) based on funds you already own.
And, as Spartydog notes, the “0% interest” thing is a red herring - it’s nearly always true that a savvy buyer offering cash will get a substantially better price than someone who wants financing.
Rule of thumb, but not universal. Sometime car makers (particularly if at the moment they want bad to move a certain model), will offer deals such that the bottom line best one will involve financing. Car makers often run promos and such that for the average person it is impossible to figure out the best deal. The idea is to for the dealer to sell schmucks the most profitable one. Only the finance savvy buyer can pressure the dealer to offer the really good deals.
It doesn’t make sense to get financing for a car in order to help build your credit. If you don’t have the good credit, the rate will be very high for a loan that’s secured with a car.
I recently was in a situation like the OP implies. I could either pay cash or finance a newish used car I planned to buy. I ended up just using my savings because the lowest rate I could get was 11.5% (and that considered putting 50% down). I wanted to get the financing in order to help build credit (my only credit is 4 years of on-time credit card payments), but making 11.5% return after taxes would entail investments that were too risky. It doesn’t make sense to pay thousands of dollars in interest just for building credit.