How to Purchase a Used Car With Cash

Buying a used car requires time, effort and a bit of legwork. First you must research the various vehicles available in your budget, read reviews, take test drives, find the exact car you want to buy, and then negotiate a deal. One of the biggest decisions you need to make during the shopping process is how will you pay for the vehicle.

Usually when someone is looking to buy a new car, they either plan on financing the car to own or leasing it for a period of time, generally 24-60 months. When the lease is up, the car goes back to the dealership. Financing almost always includes interest for the time taken to pay back the loan, and this could add up to thousands of extra dollars by the time the car is paid off.

The advantage to a lease is the ease with which you can move on to another car, making it ideal for people who only drive late-model vehicles. With financing, you can spend a reasonable amount of money each month and you will eventually own your car. There is a third option, though: buying a car outright with cash.

When paying cash, doing the proper research, setting up a budget, and negotiating the final price are all important steps to making sure you get the best vehicle for your money.

Here is a quick overview of things to think about when shopping for a used vehicle that you intend to pay cash for.

Part 1 of 4: Set a budget

Step 1: Set a budget. Decide just how much you can afford to spend on a vehicle.

Paying for a car with cash requires a big outlay of money and in many cases you will not be able to afford as much car paying in cash as you could if you financed it. Set a budget that you can easily afford; purchasing a used vehicle with cash should not leave you financially strapped.

How to Purchase a Used Car With Cash - chart of used car fees

Remember to include the cost of operating, maintaining, and insuring the vehicle. As a very general rule, license fees, taxes, and dealer fees will usually add up to 10% of the purchase cost. Taxes and licensing fees are set by the state and are usually are based on the value of car. Smog fees vary from state to state so check out if your state requires it or not.

Car dealers should be able to detail any licensing fees and taxes that will be due at signing. Check with your local DMV or Edmunds’ chart for more details about fees in your state.

Dealer fees on the other hand are set by the dealer and are usually negotiable. A document fee is usually charged to cover the cost of paperwork for the dealership. You should negotiate this fee as low as possible.

Before pulling the trigger on any vehicle purchase, get an insurance quote so there are no surprises when it comes time to insure your new vehicle.

Part 2 of 4: Research cars

Step 1: Now it’s time to find your new car. Research the various options and decide on the year make and model of the car you want to buy.

Ask friends, family members and co-workers for recommendations about cars they think would be a good fit for you and your needs.

How to Purchase a Used Car With Cash

Step 2: Hone your list. Narrow your list by researching the vehicles on sites such as Consumer Reports and Edmunds.

Look for good safety ratings as well as a high overall rating for the vehicle.

Step 3: Find a vehicle within the price range that you can afford. While this seems really straightforward, factoring in things like insurance costs and maintenance costs in the long-term makes the process more complicated.

Make a set budget for what you can afford at the moment. This amount cannot all be spent on the car. You will also need to consider the costs for:

  • An inspection
  • Insurance
  • Registration
  • Maintenance

  • Note: Any maintenance the car may need will cost more if it has to be done by a professional. Figure out your skill level in routine maintenance items like replacing the fuel filter or changing the oil. If you get a complex, newer car then you may end up paying more on maintenance even in the short term.

From this dollar amount, decide on a set amount that you are looking to actually spend on the car itself. This is your maximum amount; attempt to spend no more than 75% of this.

  • Tip: If you have to get the car inspected before getting it onto the road, bring it to a mechanic before purchasing, so they can give you a rundown of what needs to be attended to before an inspection can be passed. Not only can this information be used when negotiating a price, but it will help you stick to your budget.

How to Purchase a Used Car With Cash

Simply click on the Car Values tab on KBB and enter the information on the vehicle you are interested in purchasing. The required information will include year, make, and model as well as the mileage and your zip code. The site will give a price range for that particular vehicle in your specific area. Use these numbers to set a price range for the vehicle you are interested in buying.

  • Tip: These sites will give you a price range for both private party sales and buying from a dealer. In most cases, a private party vehicle will be cheaper but dealerships offer options such as a warranty or certification. There are usually also more recourse options if you are unhappy with the vehicle if you purchase from a dealer.

How to Purchase a Used Car With Cash

Step 4: Look on local listings. Find your car by searching local dealership websites and automotive websites such as Autotrader, and eBay Motors. Consider checking Craigslist as well for used cars.

The advantage to a lease is the ease with which you can move on to another car, making it ideal for people who only drive late-model vehicles. With financing, you can spend a reasonable amount of money each month and you will eventually own your car. There is a third option, though: buying a car outright with cash.

Part 3 of 4: Paying cash in a private sale

When buying a car in a private sale, the transaction is usually done with cash or a cashier’s check. Some people choose to get a loan from a lending institution in order to purchase a car, but this means that interest will add to the cost of the car over time. It is cheaper in the long run to pay for a car up front and avoid paying interest altogether.

How to Purchase a Used Car With Cash - Diagram showing locations of VIN number on vehicles

Step 2: Inspect the cars. Visually inspect each car, take it for test drive, and record the VIN number of the vehicle if you are serious about buying it.

Be sure to take the car for a test drive before negotiating a price. This is important for a number of reasons.

The steering system and pedals are good for telling how much wear and tear a car has been subjected to in its lifetime. Pedals and steering wheels with lots of play in them (i.e. movement that doesn’t do anything or feels loose) are a bad sign.

You can listen to the engine, transmission, axles, and exhaust while driving. If you cannot hear these individual things except for the engine and exhaust, then this is a good sign. A whiny transmission or a clunky differential in one of the axles is a red flag that the car may need serious repairs.

You will likely be able to smell any fluid leaks in the engine compartment on a test drive as the engine warms up. Be sure to use the air conditioner and heater while taking a test drive.

How to Purchase a Used Car With Cash

Step 3: Pull a vehicle report. If the vehicle is one you are seriously considering, it is wise to pull a vehicle history report via a site such as CarFax or AutoCheck.

These reports will tell you of any liens against the car, if it has been in an accident, and other details about the vehicle. Simply enter the VIN number of the vehicle and a credit card number to pull a vehicle report.

  • Warning: The cost of a vehicle history report varies depending on how many you purchase: the more you buy, the less they cost. If you plan on considering lots of vehicles, choosing the unlimited vehicle report option is usually the best deal. Only pull reports on vehicles that you are seriously considering.

How to Purchase a Used Car With Cash

Step 4: Have the car inspected. If the vehicle history report checks out and you are interested in moving forward with a specific vehicle, ask the seller if you can have the car inspected by a mechanic. This is especially important if you are purchasing from a private seller.

  • Warning: If the seller is unwilling to let you have it inspected, move on to the next vehicle.

Make notes about any issues they find with the car to discuss with the seller. Ask the seller to address any issues that the mechanic finds or lower the price by the cost of the repairs.

Step 5: Negotiate the best price. Know the numbers on the vehicle you are interested in before talking to the seller.

Have a KBB printout as to what the vehicle is worth according to them and work off of that number for negotiation purposes.

Always be ready to walk away. Never get too attached to a vehicle and remember that there is always another car that you will love just as much. If the seller refuses to budge on the price and you are uncomfortable meeting their number, walk away.

Start with a low offer and move up your budget ladder slowly. Never give any indication of what you are actually willing to pay.

Once you have agreed on a price, close the deal.

How to Purchase a Used Car With Cash

Step 6: Finish the paperwork to close the deal. The required paperwork will vary by state.

Check with your local DMV to make sure you complete all necessary paperwork. Be sure to sign a sales contract or bill of sale for the car and get a receipt for the vehicle. The sales contract should include the following details:

  • Year
  • Make
  • Model
  • Date of sale
  • VIN number
  • Current mileage on the vehicle
  • Sale price

Depending on the laws of the state you live in, you may need to provide proof of insurance before you can drive the vehicle away. Again, depending on state laws, you may be responsive for fees such as a documentation fee, smog fee, sales tax and motor vehicle registry fees.

Pay the owner in either cash or with a cashier’s check, available at most banks - plan ahead; cashier’s checks can take a couple of days to obtain.

Meet in a public area to do the exchange. Parking lots of busy shopping centers work well, but some towns offer the local police station’s parking lot for this purpose. This is optimal for making the exchange.

  • Warning: Be very wary if the car is missing paperwork like a title or recent registration. If a vehicle turns out to be stolen, it will be confiscated from the person in possession of it whether or not they were responsible for the theft. Classic cars have undergone full restorations only to be confiscated when they apply for registration because they were stolen years earlier.

How to Purchase a Used Car With Cash

Step 8: Get the title to the vehicle. Do not leave the dealership or the seller’s house without the title to the vehicle.

The process varies by state but in most, you will both have to sign the title, and record the mileage of the vehicle. In some states the title may have to be notified.

Part 4 of 4: Paying cash at a dealership

The process for buying a car with money upfront is similar when shopping at a car dealership, but the process of financing a car can vary quite a bit. Dealerships can take into account money down and give incentives like periods of time with no interest on payments or cash rebates. Look into these options when considering paying upfront.

If you can put some money down and get low or no interest financing, then you can use the money you would have otherwise paid for the car to save or invest. It is always good to have money on hand, which makes you more financially flexible. On the other hand, it is wise to avoid interest on large loans whenever possible.

Step 1: Look for deals at local dealerships. Look mostly in used car dealerships, as buying a new car upfront comes with the alarming initial drop in value once the car becomes used.

The value drops either way, but it is disheartening to spend $30,000 and drive away a car now worth $22,000 - all in the same day.

Step 2: Negotiate your deal. A number of deals involve either low/no interest rates or a cash rebate.

Try to negotiate a larger cash rebate instead of a low interest rate before announcing that you will be paying upfront and not financing.

Use the fact that a sale means immediate money in the seller’s pocket as a negotiating point, and try to find a price that works for both parties. Large dealerships may not need the cash right away as much, and may profit more from financing. Smaller dealerships are much more likely to be swayed by the appeal of cash-in-hand.

Step 2: Complete the required paperwork and submit payment. The dealership will have forms and agreements for you to fill out before you take ownership of the car.

Once the forms are completed, pay with cash or a cashier’s check, and receive the title to your newly-purchased used car.

Congratulations! You’ve now successfully bought a new-to-you car in great working order. Now it’s time to get out on the road and enjoy your new vehicle. If you’re a first-time car owner read this article for more tips and advice.

Purchasing a car with cash upfront is a great option for anyone looking to save money over time. When you buy a car with cash, you can save thousands of dollars in loan interest, and you can skip the monthly drain of making car payments. With careful research and negotiation, you’ll be able to drive off the lot with a car that you like, at a price you feel completely comfortable with.

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