Why do car dealers not want you to pay cash?

A new trend we've seen since vehicle shortages started is dealers not accepting cash or even your own financing when buying a new vehicle. The reason? Dealerships make money financing cars. With far fewer vehicles to sell, they want to maximize every dollar of profit, so some will not take your check.

carpro.com - CarPro Advice: Does Paying Cash Help and Can You Use It Right Now?

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A new trend we’ve seen since vehicle shortages started is dealers not accepting cash or even your own financing when buying a new vehicle. The reason? Dealerships make money financing cars. With far fewer vehicles to sell, they want to maximize every dollar of profit, so some will not take your check. Is this illegal? No. When you buy a car, you agree to all the terms and conditions the dealer requires. Is it a good business practice? Not in my opinion. Even before the shortages, we heard this question often: "Will I get a better price by paying cash for my next car?" While there was a time when the answer was yes, today the opposite is actually true. I pull back the curtain below and tell you why this is true.

Paying Cash vs Financing

You read that right, you can often get a better price by financing the car with the dealership from which you are purchasing. Thinking back to my years in the retail auto industry, I ran across a lot of people who wanted to throw around the fact that they were paying cash, and were determined that they should get some sort of special deal because of that. The truth was, as a car dealer, I didn't really care how we got our money. Whether cash, credit union, bank, or one of our finance sources, we got our money quickly, often the same day, so waving a blank check in front of me did not carry any weight when it came to pricing my vehicle.

Finance Rebates

A few years ago, and even more so today, many of the captive finance sources (Ford Credit, GM Financial, Toyota Financial Services, etc.) began offering extra rebates for financing with them. I've seen those amounts as large as $1500. Diehard cash buyers are often put off by this and get angry with their car dealer, but the truth is, the dealer cannot control this. There is an easy way to get around it, however. The finance companies offering the rebates are enticing you to finance with them, of course, to make a return through interest rates. They are hoping that you will decide to keep the loan so they can make money. In these cases, the savvy buyer will proceed with financing the car, get the benefit of the financing rebate, and simply pay the car off in full before the first payment is due. You get the full benefit of the extra rebate and get to write a smaller check. The finance companies know a lot of people are going to do this and they are fine with it, but others will not go through the process.

First Three Payments

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One important note: dealers like to tell you to make the first three payments before you pay the car off. Dealers are paid a flat fee in many cases, it's normally a couple of hundred dollars. That flat fee is charged back to them if the consumer pays off his or her car before three payments are made, but by law, you can pay it off at any time. Getting a better price in the case of paying cash even when there are no additional rebates just isn't true, not anymore at least. The last figure I saw nationwide showed that dealers average around $1000 in finance income from every car they sell. These profits are derived from the sale of extended warranties, credit life insurance, gap insurance, etc.

Bottom Line

Going back to my days as a dealership owner, when we were on a tight deal, meaning we were at the point of parting ways with the customer and having a no-sale, I would ask how the customer was paying for the car. If he or she were financing with us, I would accept the deal in hopes of making a profit on a warranty or some other product. If he or she were paying cash, I would likely pass on the deal. So as you can see, paying cash was a detriment to the consumer, instead of a benefit. Paying cash will reduce your time spent in a dealership, if they will accept your cash or financing, and you can avoid interest charges if the car you are buying does not offer 0% APR financing. However, paying cash will not necessarily guarantee you a better price, and in fact, it might cause you to pay a higher price.

Photo Credit: LightField Studios/Shutterstock.com.

carpro.com - CarPro Advice: Does Paying Cash Help and Can You Use It Right Now?

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