Tips on Buying Cars: Buying with cash, cash deals, finance department


Question
My aunt is paying cash for a car (e.g. 2006). Can she expect the dealer to knock off  a good percent or do they make their money off the financing?  How much can she expect them to come down?
She is going on her own and I don't want to see her get taken advantage of.

Answer
Hi, and thanks for your question.

You're going to be very surprised at what I'm going to tell you: car dealers hate cash deals!

It depends on the dealership, but a large percentage of what dealers make on a car deal comes from the finance department. Here's an example of one way they make money.

They negotiate a monthly payment with you. For example, let's say you buy a car that costs $25,000; you've negotiated a monthly payment of $550, which you're pretty comofortable with, and through the dealership you agree to a 60 month loan at 6%. At this rate and term (which depends on the buyers credit, financial situation, etc.), the actual monthly payment would be $483. The difference between the $550 your paying and the $483 that the loan actually cost is $67/month times 60 months, which comes to $4,020. As soon as the deal is finalized with the bank, the dealer would put this $4,020
in their pocket. And this is above and beyond any money they make on your trade in, or on the price of the car they're selling you in the first place.

If you pay cash, or have your bank or credit union do your financing, they don't make money at all on the back end (financing) of the deal. You can see why they hate this. So, as I state in my book, never negotiate with a dealer, and if you can, consider getting your own financing through a bank or credit union.

Also, be careful when you tell them you're paying cash. A typical response would be something like this:

"Wow, you're paying cash, that's great, and the best way to buy if you can. I'll tell you what, for a cash deal we'll knock a bunch off for you and make you the best deal you can get."

The problem with this is that, knowing that they're not going to make money on the financing, they lead you to believe that they like cash deals and will give you a better deal because of it. Not true. In most business this makes perfect sense, but not in the car sales business. If you don't know the MSRP, invoice price, and what the going price for the particular vehicle you're looking at in your part of the country is, you're likely to pay way too much $$$. Do some research on what you want, and what it costs before you walk onto a car lot to do the deal.

I hope this helps you, and your aunt. If you remember and have the time, please let me know how it goes.

Regards, and Good Luck!


Ron