Auto Myth #1 - Pay Cash, Pay Less

From time to time, I will post common myths and misconceptions regarding automobile buying and leasing. I will then attempt to debunk them or explain them. However, myths have a life of their own and any feeble attempt on my part to eliminate any of them will accomplish little.

Myth #1 - Dealers sell cars for less if payment is made with cash

Not true. Actually, car dealers prefer that you allow them to arrange a loan or lease because they can receive additional profit through interest rate markups and commissions from the finance company. If you pay cash, you deny them this opportunity. Since the dealer is not the finance company, he ALWAYS receives cash -- either directly from the buyer as a cash payment, or from the finance company as the proceeds of a loan or lease.

Having said the above, this doesn't mean that your overall costs aren't lower when you pay cash -- because your costs ARE lower. Paying cash means you don't pay loan finance charges and, additionally in the case of a lease, you don't pay an acquistion fee or disposition fee, although you will pay more sales tax (in most states).

In summary, paying cash is always the least expensive way to acquire a new car, but not because the dealer gives you a "cash discount."