Why You Should Never Tell a Dealer You're Paying Cash

Saving up enough money to buy a car with cash is certainly more difficult than getting a loan, so people assume they should be rewarded for this achievement.

The reason it doesn't work that way is because car dealers make money three different ways when you purchase a new car:

1. The Sale of the Car
2. The Financing
3. The Trade-In

Most people know that dealers make a certain profit on the sale of the vehicle (and the trade-in if you have one), but what most don't realize is that dealers sometimes make the bulk of their profit on the financing - by charging a loan mark-up.

For example, the dealer will set you up with a car loan through one of their finance partners at 5% interest, and will tack on an extra 2% loan markup. You will be paying 7% interest with 2% of that going straight to the dealer's pocket.

For this reason, most salesman will ask you upfront if you will be financing or paying cash.

NEVER tell them you're paying cash!

When asked, just respond by saying "probably". If they keep hounding you, tell them you're interested in financing but that you want to agree on the price of the car first.

If you tell them you're paying cash, they will automatically calculate a lower profit and thus will be less likely to negotiate a lower price for you.

If they think you're going to be financing, they figure they'll make a few hundred dollars in extra profit and therefore be more flexible with the price of the car.

Once you hammer out and agree to the price of the new car, then you can tell them you changed your mind and would like to pay cash.