When Do You Tell a Car Dealership You’re Paying Cash?

Paying cash for a new or used vehicle at a dealership? Chances are you’ve heard this common advice: Don’t tell your salesperson that you intend to forego financing and pay cash.

The same typically holds true if you’ve gotten pre-approved by a credit union.

However, as soon as they figure out you’re a legitimate buyer, a good car salesman is going to want to know how you intend to pay for the car.

What do you do in that situation? Do you lie? Refuse to answer? Or do you tell them the truth?

That’s what a listener of the Clark Howard Podcast recently asked.

What Do You Say If You’re a Cash Buyer and a Dealership Salesperson Asks How You Intend To Pay?

So you’re going to buy a car from a dealership and you intend to pay cash. You know you shouldn’t walk in and declare that to the first person you see on the lot. But what if they ask? When should you reveal it?

A Clark listener wondered about that on the March 14 podcast episode.

Justin in Illinois asked: “You recommend not disclosing that you will be paying in cash when purchasing a used car. But what do you do when the salesperson asks? Do you lie, then bait and switch after a price has been agreed upon? Or is it better to just do the financing and pay the car loan off immediately? What’s to stop them from increasing the price of the vehicle once they find out I’m not financing?”

The truth is that a dealership may balk at upholding the negotiated price if they’re depending on a financing deal to make a profit on the vehicle. Chances are it won’t come to that. Reality tends to be more complex than the on-paper advice. (More on that later.)

Clark’s advice, though, is to avoid committing to a cash deal even if you’re convinced that’s how you’ll pay.

“I’m not asking you to lie. I’m asking you to say, ‘I’m not sure.’ Just tell a little fib,” Clark says. “It’s possible that the finance and insurance department will blow the deal up. That’s where all the profit is in dealerships.

“They’ll try to sell you some kind of garbage extended warranty and they’ll try to sell you some kind of service plan for your maintenance visits. And they’ll try to sell you the financing. Just keep smiling and say, ‘Oh, no thank you. Oh, no thank you. Oh, no thank you.'”

Clark’s Take on the Risk of a Finance Department Switcharoo

Let’s say you convince the salesperson you’re open to financing. You negotiate the price of the vehicle (not the monthly payment amount). Now you’re in the finance department filling out paperwork and talking to what’s usually one of the dealership’s biggest sharks.

What does Clark think about the risk that they’ll tear up the agreed-upon deal once you avoid their profit-padding finance options?

“You’ll know they’re people you shouldn’t be buying from in the first place if you’ve already made a deal on the price of the vehicle and then they say, ‘Well we’re just not gonna sell it to you for that,'” Clark says.

“That tells you everything you need to know. Because who knows what else you’re going to have a problem with them with if they start playing that game.”

My Experience Selling Cars: How Financing and Negotiating Really Works

I worked as a car salesman for a Chrysler Dodge Jeep Ram dealership for a time.

I learned that when customers chose to accept an in-house financing deal, our finance department would pad the most competitive interest rate they’d get from partner banks.

In other words, if a person was eligible for a loan with 3% interest, the finance manager would tell the customer we could do 3.75% — and the 0.75% became profit.

That’s a long preface to say yes, financing through a dealership is a good way to give more of your money toward their next vacation.

However, the idea that you’re going to waltz into a dealership, negotiate a much better price on a vehicle under the guise of paying via their finance department, pull a last-minute switch to cash and get one over on a dealership probably is overplayed.

Some of the best car salespeople I worked with sold 30+ vehicles a month, year after year. The finance department sees exponentially more business. They’ve seen hundreds of other customers trying the same money-saving method — probably every month.

Let’s consider some examples. If you won’t give a straight answer about your payment method while you’re negotiating, a salesperson may tell you they can get to a certain price if and only if you finance through the dealership.

A dealership also knows a certain percentage of people will pay off a loan immediately and void any long-term interest gains the finance department was hoping to glean. So it’s unlikely they’ll do well long term if they’re solely reliant on finance deals to make money.

Car Dealerships Aren’t Solely Reliant on Financing Deals

If a dealership can’t turn a profit through financing, and you’ve done your homework and are a tough negotiator on price, they’ll still try to profit off of you in other ways.

Perhaps through your trade-in. Maybe by talking you into an extended warranty or long-term service agreement. Or they may work with an insurance company and get a financial incentive to sell you on switching your auto insurance.

Car dealership owners and general managers have a range of personalities as well. Some of them are old-school and crusty. The type of dealers you probably saw in car commercials in the 1990s.

Dealerships with that sort of culture probably will give you a hard time, at minimum, if you reveal you’re paying cash in the finance department. They may try to grind you down, guilt trip you or tear up the deal.

If you have a no-nonsense personality that can handle that sort of social pressure, you may be fine with that sort of interaction. If not, it may be better for you to finance (preferably through a credit union) and then pay off the loan fast.

The likelihood that a dealership is going to do a deal where they make zero profit just because you successfully hid the fact that you’re paying cash seems highly unlikely.

There are times when you can get a tremendous overall deal on a vehicle. But that typically depends on the macro economy, the overall trends in the auto industry and how well the dealership is doing that particular month, week or day.

Paying for a Vehicle in Cash Comes With Pros and Cons

Keep in mind that paying cash for a car may not be the best idea even if you have the money to do so.

The MSRP for a 2023 Dodge Charger is $32,645 for the most basic trim level. Let’s say you’re paying $35,000 for that vehicle before fees and taxes. And you get an auto loan at 5%.

Assume that you’re financing the entirety of the price for a 42-month term — Clark’s maximum recommended term length. You’d be paying a total of $3,224.46 in interest.

However, there’s some level of opportunity cost with your $32,645. The best high-yield savings accounts are paying somewhere near 4% right now. CDs, money market accounts and Series I savings bonds are paying better rates. You may get significantly more return on your cash if you’re able to invest a good portion of it into a target date retirement fund or an ETF that tracks the S&P 500.

You may also lose the opportunity to build your credit or get some sort of discount.

Of course, avoiding interest and monthly payments is a great idea. And you may be able to negotiate a good price on the car and then pay in cash right then and there. You won’t have to wait to get the title to the vehicle or fuss with online loan payments.

Final Thoughts

Should you tell a car salesperson that you’re paying cash for a vehicle as soon as you walk on the lot? No.

But don’t expect that switching your payment method to cash, or a pre-approved credit union loan, at the last minute is going to be a magic bullet to getting a great deal.

Coming prepared with hard data on the fair market value of the vehicle you want and comparison shopping at multiple dealerships are also important.

It’s also not always the best overall choice to pay cash.