# Buying a used car- cash, or credit, pay off 1st payment? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [August 15, 2018, 1:07am UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625 "2018-08-15T01:07:01Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![california\_jobcase](https://avatars.discourse-cdn.com/v4/letter/c/9d8465/32.png) [@california\_jobcase](https://boards.straightdope.com/u/california_jobcase)\ **Post date:** [August 15, 2018, 1:07am UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/1 "2018-08-15T01:07:01Z")
I am shopping for a “new” car. Mine got totaled a week ago, not my fault. I am currently considering used cars at new car dealerships, no older than 2016, maybe 2015. I could pay cash, but I know dealers make money by financing. The cars I’m interested in currently are priced at about $16k. Could I save money by getting them to reduce the price significantly, say to $13-14k then letting them finance for 72 months? I could then pay it off at the first monthly payment. If this idea is loony, does cash still talk? There are two nearly identical cars at two different dealers in town. ---
**Author:** ![Czarcasm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/czarcasm/32/4050_2.png) [@Czarcasm](https://boards.straightdope.com/u/Czarcasm)\ **Post date:** [August 15, 2018, 1:10am UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/2 "2018-08-15T01:10:35Z")
You negotiate the price down as much as possible, shake the salesperson’s hand…then pull out the cash. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [August 15, 2018, 2:01am UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/3 "2018-08-15T02:01:41Z")
Does the dealer’s financing program have a prepayment penalty? ---
**Author:** ![california\_jobcase](https://avatars.discourse-cdn.com/v4/letter/c/9d8465/32.png) [@california\_jobcase](https://boards.straightdope.com/u/california_jobcase)\ **Post date:** [August 15, 2018, 2:16am UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/4 "2018-08-15T02:16:24Z")
That would be important to know, of course. I wouldn’t finance if I there was a prepayment penalty. When I bought my last car (new), they said they’d cut another thousand off of the negotiated selling price if I’d finance it through Hyundai instead of paying cash. I ended up getting the window sticker price of $27K+ down to 23 and change, including tax, title, and paperwork fees. Paid it off at the first monthly payment, costing me about $36 interest total. ---
**Author:** ![control-z](https://avatars.discourse-cdn.com/v4/letter/c/eada6e/32.png) [@control-z](https://boards.straightdope.com/u/control-z)\ **Post date:** [August 15, 2018, 7:12pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/5 "2018-08-15T19:12:58Z")
> [@kunilou](#): > > Does the dealer’s financing program have a prepayment penalty? I’ve always asked, and the answer has always been no. But I will still keep asking because a prepayment penalty would be bad on any sort of loan. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [August 15, 2018, 7:16pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/6 "2018-08-15T19:16:01Z")
Isn’t much of the financing incentives mentioned by the OP only on new car sales? ---
**Author:** ![Musicat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/musicat/32/20189_2.png) [@Musicat](https://boards.straightdope.com/u/Musicat)\ **Post date:** [August 15, 2018, 7:17pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/7 "2018-08-15T19:17:06Z")
In general, dealer financing is a worse deal than bank financing you can arrange on your own (they aren’t doing it for free!). So don’t overlook that option. ---
**Author:** ![ivylass](https://avatars.discourse-cdn.com/v4/letter/i/9de053/32.png) [@ivylass](https://boards.straightdope.com/u/ivylass)\ **Post date:** [August 15, 2018, 8:02pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/8 "2018-08-15T20:02:06Z")
> [@kunilou](#): > > Does the dealer’s financing program have a prepayment penalty? We didn’t have one. The only way we could get the dealer incentives on my new 2016 Toyota was to finance. So we financed and paid it off with the first payment. Stupid, really. But that’s how they work with new cars. Since you’re going used pull out the wad of cash and see what they say. You can always go across the street to another dealer. ---
**Author:** ![Balthisar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/balthisar/32/2825_2.png) [@Balthisar](https://boards.straightdope.com/u/Balthisar)\ **Post date:** [August 16, 2018, 11:42am UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/9 "2018-08-16T11:42:35Z")
> [@Musicat](#): > > In general, dealer financing is a worse deal than bank financing you can arrange on your own (they aren’t doing it for free!). So don’t overlook that option. OP doesn’t need financing, though, and can pay cash. The idea is to use financing with the dealer as leverage to lower the price, since the dealer thinks it will earn a nice financing kickback. ---
**Author:** ![Musicat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/musicat/32/20189_2.png) [@Musicat](https://boards.straightdope.com/u/Musicat)\ **Post date:** [August 16, 2018, 12:00pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/10 "2018-08-16T12:00:22Z")
> [@Balthisar](#): > > OP doesn’t need financing, though, and can pay cash. The idea is to use financing with the dealer as leverage to lower the price, since the dealer thinks it will earn a nice financing kickback. OP brought up the possibility of financing, so I suggested another source. This could also be used as a lever with the dealer; I will finance this elsewhere unless you give me a better price or a better financing deal. This just increases the negotiation options even if the OP was planning on paying cash in the first place. ---
**Author:** ![california\_jobcase](https://avatars.discourse-cdn.com/v4/letter/c/9d8465/32.png) [@california\_jobcase](https://boards.straightdope.com/u/california_jobcase)\ **Post date:** [August 16, 2018, 12:53pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/11 "2018-08-16T12:53:44Z")
Hmm… “Well, I was going to finance it through the credit union, but if you knock off $1500 from the asking price, I guess I could go with you.” I hadn’t thought of that. ---
**Author:** ![Czarcasm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/czarcasm/32/4050_2.png) [@Czarcasm](https://boards.straightdope.com/u/Czarcasm)\ **Post date:** [August 16, 2018, 2:13pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/12 "2018-08-16T14:13:48Z")
> [@california\_jobcase](#): > > Hmm… > “Well, I was going to finance it through the credit union, but if you knock off $1500 from the asking price, I guess I could go with you.” > > I hadn’t thought of that. Think long, hard and twice about it. Used car dealerships aren’t in the habit of giving away money that readily-find out, _in writing_, what the final cost will be. ---
**Author:** ![control-z](https://avatars.discourse-cdn.com/v4/letter/c/eada6e/32.png) [@control-z](https://boards.straightdope.com/u/control-z)\ **Post date:** [August 16, 2018, 3:29pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/13 "2018-08-16T15:29:56Z")
> [@Czarcasm](#): > > Think long, hard and twice about it. Used car dealerships aren’t in the habit of giving away money that readily-find out, _in writing_, what the final cost will be. Yep you need to speak to the dealer in terms of “out the door” price. That is the final price with tax, title, tags, processing fees, everything. Negotiate on that price. ---
**Author:** ![Czarcasm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/czarcasm/32/4050_2.png) [@Czarcasm](https://boards.straightdope.com/u/Czarcasm)\ **Post date:** [August 16, 2018, 3:33pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/14 "2018-08-16T15:33:24Z")
> [@control-z](#): > > Yep you need to speak to the dealer in terms of “out the door” price. That is the final price with tax, title, tags, processing fees, everything. Negotiate on that price. That’s not enough. That final price has to be put into the contract(BOTH your copy and theirs) because dealertalk isn’t legally binding. ---
**Author:** ![Spiderman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/spiderman/32/230_2.png) [@Spiderman](https://boards.straightdope.com/u/Spiderman)\ **Post date:** [August 16, 2018, 4:27pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/15 "2018-08-16T16:27:40Z")
> [@control-z](#): > > I’ve always asked, and the answer has always been no. But I will still keep asking because a prepayment penalty would be bad on any sort of loan. Don’t ask, ask to read the contract; I wouldn’t trust some dealers to give me the accurate time. I was looking to buy one (new) car; while there was no prepayment penalty, per se, I had to keep their loan for 3-4 months to get the cash back bonus. My guess is that after a couple of months, most people forget to then go to their bank for the refi/payoff loan, which is not necessarily the case if you do it with your first payment. ---
**Author:** ![control-z](https://avatars.discourse-cdn.com/v4/letter/c/eada6e/32.png) [@control-z](https://boards.straightdope.com/u/control-z)\ **Post date:** [August 16, 2018, 4:36pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/16 "2018-08-16T16:36:32Z")
I just mean negotiate on out-the-door number during verbal negotiations. That at least gets you on the same page. The salesman will act like he doesn’t think your offer will be accepted and go talk to his sales manager and they will make it look like a big important meeting. They have always done this in sight of me but out of hearing distance. Then salesman will come back with some sort of counter-offer. And so on. (addressing this to OP more than you.) But yes, don’t budge from that number when it comes time to sign paperwork. They always put me through the extended warranty and paint protection gauntlet even after agreeing on an out-the-door price. ---
**Author:** ![Bullitt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bullitt/32/5725_2.png) [@Bullitt](https://boards.straightdope.com/u/Bullitt)\ **Post date:** [August 16, 2018, 4:36pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/17 "2018-08-16T16:36:52Z")
> [@Czarcasm](#): > > You negotiate the price down as much as possible, shake the salesperson’s hand…then pull out the cash. I did that except for the cash part because the dealer was offering 0% financing. I took the 0%. If 0% is an available option, that’s what I recommend. If not, then as long as the financed interest rate is higher (e.g. costs more) than what your cash can earn in your investments, then pay cash. But if your cash can earn a higher rate than what the financing is costing you, consider the financing. ---
**Author:** ![Czarcasm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/czarcasm/32/4050_2.png) [@Czarcasm](https://boards.straightdope.com/u/Czarcasm)\ **Post date:** [August 16, 2018, 4:42pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/18 "2018-08-16T16:42:51Z")
[Read this article from Consumer Reports](https://www.consumerreports.org/shopping/beware-of-car-dealership-sales-contracts/) to understand that negotiating the interest rate is just a small part of the deal. There are many ways they can recoup money back from any deals you think you’ve made-they are better at this than you are almost 100% of the time. ---
**Author:** ![Machine\_Elf](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@Machine\_Elf](https://boards.straightdope.com/u/Machine_Elf)\ **Post date:** [August 16, 2018, 4:59pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/19 "2018-08-16T16:59:00Z")
Regardless of how you negotiate the price, if you’re sitting on tens of thousands of dollars in cash, why would you use it to pay off your car loan? Presumably your loan costs something like 3% annually. Why not take cash and buy shares of an index mutual fund (e.g. [VFINX](https://investor.vanguard.com/mutual-funds/profile/VFINX)) that is probably going to earn something like 6% annually? Obviously if that pile of cash represents most/all of your net worth, then it might not be a good idea to take that risk: a serious recession could crush your mutual fund investment, and maybe also get you laid off, at which point you might be facing repossession of your car due to default. OTOH, if that cash represents most/all of your net worth, maybe you should consider buying a cheaper car that doesn’t leave you bereft of savings. But if your finances are robust, then keep your money on your side, working for you, and pay the loan down on the original schedule; you’re likely to come out ahead. ---
**Author:** ![Bullitt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bullitt/32/5725_2.png) [@Bullitt](https://boards.straightdope.com/u/Bullitt)\ **Post date:** [August 16, 2018, 5:21pm UTC](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625/20 "2018-08-16T17:21:45Z")
> [@Czarcasm](#): > > [Read this article from Consumer Reports](https://www.consumerreports.org/shopping/beware-of-car-dealership-sales-contracts/) to understand that negotiating the interest rate is just a small part of the deal. There are many ways they can recoup money back from any deals you think you’ve made-they are better at this than you are almost 100% of the time. If the net cost to me is lowest, then do I need to be concerned if the dealer gets incentives based on finance method? [Next page](https://boards.straightdope.com/t/buying-a-used-car-cash-or-credit-pay-off-1st-payment/819625.md?page=2)