How We’ve Paid Cash for Our Cars

Our Car with Cash Guide

Every time we’ve bought a car in our almost six years of marriage (which has been two car purchases, plus a scooter — so we’re pretty much experts), the first question that enters our brains is, How are we gonna pay for it? 

Yes, this question trumps, What kind of car? and How much are we going to spend? and the always-important What color will it be?! Why does it trump the other questions?  Well, for a few reasons. First, it forces us to take a long, hard look at our finances. We’re able to see how much money is in our bank account, whether it’s feasible to pay for an entire car with cash, and whether we have any upcoming expenses to consider before we spend thousands on a vehicle. All of these considerations lead us to our next question.

How much are we going to spend? Which shouldn’t be confused with How much can we spend? Asking that question would imply that we must receive permission and that we plan to spend as much as possible. No, a big purchase should be much more purposeful than that. And thus, How much are we going to spend? is asked. We’ve already decided how to pay for it. And in both instances when we’ve bought a car, we’ve decided to pay cash. When we first asked how much money we would spend, the answer came to almost all the money we had to our name (minus our emergency fund), which was $5000 for the car out the door.

And then we came to the question of What kind of car? Our previous two questions had limited the selection by a good bit. But if our first decision had been the kind of car, it would have been much more tempting to go over our budget. It wasn’t easy finding a decent-looking car (my priority) in good condition (Johnny’s priority) for that price (our priority), but it was possible. We ended up with a four-year-old bare bones Ford Focus (no power-anything, including A/C) that had 50,000 miles on it. No one was telling us what an awesome car we had, but we loved that thing.

For our second car, we went through the same song and dance. And let me tell you, we went back and forth with the How are we gonna pay for it? question. We didn’t want to say goodbye to a big chunk of the cash we’d saved up since getting out of debt. But we also didn’t want to say “Hello, again, Old Friend!” to the Debt Monster after working so hard to break ties with it/him/her…. him. Yes, I’ll call it a “him.” 🙂 And a small part of us imagined for a split-second what it would be like to own our dream car. But at what expense (multiple meanings, all financial)? After we weighed the pros and cons, paying 100% with cash once again seemed like the best solution for our situation. Every situation is different, but we’ve made it a point to avoid debt if possible.

So let’s recap:

If in certain lights the car could be considered “pink,” it was definitely once used to sell Mary Kay. And, yes, you should not buy it. Also, ask yourself these questions:

  • How are we gonna pay for it?
  • How much are we going to spend?
  • What kind of car should we get?

Of course if you’re one person, all those questions should be switched to the singular “I.” Unless you’re still struggling with your Danny Tanner/Uncle Joey alter egos. Then “we” is still appropriate.

Anyone else have tips for budget-conscious car buyers out there?

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  • Reply MomofTwoPreciousGirls May 28, 2013 at 8:10 am

    Make sure to have a mechanic you trust if you or a family member are not handy with cars.
    Then make sure that mechanic takes a thorough look at whatever you’re buying.
    My husband THINKS he knows about cars but the two times he bought bargains for cash, they became money sucks!!!

    • Reply Johnny May 29, 2013 at 12:16 pm

      Great tip. Unlike your husband, I KNOW that I don’t know anything about cars. Sure, I can throw a spare tire on, but that’s about the extent of it. Use a mechanic you trust and get that thing checked before you sign the papers.

  • Reply Rob May 28, 2013 at 8:47 am

    When buying a car, besides considering the price, I also consider other things such as:
    insurance costs (some cars require higher insurance than others for various reasons)
    yearly maintenance costs (some cars are not as maintenance free as others)
    safety factors (some cars are safer to drive than others)

    To check those things I look at Consumers Reports, Blue Book listings, etc .

    Sometimes paying less for a car is not always a bargain, all things considered for often you get for what you pay for. Due diligence. Like you though, I never take out car loans but always pay cash for my cars. Car loans and leases are simply not worth it.

    • Reply Johnny May 29, 2013 at 12:18 pm

      Good point. And that’s actually the exact process we go through AFTER we’ve figured out what our budget allows. Our priority order has been reliability, safety, gas mileage, maintenance costs, and insurance costs.

  • Reply Dennis May 28, 2013 at 9:23 am

    Great post, and I really respect you or paying cash for your cars. Delaying car payments has become norm while it is not smart at all.

    When I get a car (last time I exchanged cars was year ago) I follow a set of these rules:

    1. Set a cash amount you can pay right away that won’t hurt your budget too much.
    2. Go for the newest and the least mileage cars, not for class. I like to avoid car care, although some people are fans of it.
    3. Choose a car that will not depreciate too fast. Say, if you’re buying a 2011 car, check the prices of the same model made in the year 2008. That’s about the price you will sell it for in a couple of years. You don’t want your car to become twice cheaper in two years.

    I like this approach and it works well for me. Lots of people feel the need to go for “classier” cars without being able to afford them but I find it the result of brand brainwashing and peer pressure.

    • Reply Johnny May 29, 2013 at 12:32 pm

      I definitely wanted a “classier” car. It took me a whole lot of wrestling with the numbers and consumer reports to realize that didn’t make any sense. So we settled with a Corolla. 🙂 It’s a great car, will be a great car, and will sell well if we ever decide to sell it.

      Great points.

  • Reply Tina @ My Shiny Pennies May 28, 2013 at 9:34 am

    I like your distinction of how much to spend vs how much can one spend. In theory, you can spend all the money in the bank!

    I prefer buying used so that I don’t get hit with depreciation, In order to benefit from the savings, I check reliability ratings to avoid buying a lemon.

    • Reply Chris @ Amplify May 28, 2013 at 3:04 pm

      Buying used is the way to go. Even buying a year or two old model can make all the difference in purchasing power. Most dealerships have a certified use car program that gives some piece of mind.

      We’re close to paying off our second car but already know we’ll be in the market for a bigger car soon. We’ll be more strategic on what we can afford and will also be focused buying used.

      • Reply Johnny May 29, 2013 at 12:40 pm

        We liked the idea of certified used, but ultimately, it didn’t justify the price for the models we were looking at. But we’ll also be in the market AGAIN before long to get a bigger car.

    • Reply Johnny May 29, 2013 at 12:39 pm

      Or all the money that slick car salesman is saying you “can” finance.

  • Reply Tara May 28, 2013 at 9:38 am

    I am with you in the paying cash bandwagon, EXCEPT if you get a crazy good deal on financing (less than 1% and you can pay it off in the standard time frame) As you rarely get good financing on used cars these days as so many people are buying used, I’m going to be paying cash for my next car. I luckily have some family members who buy new and treat their cars well. My mom has a 2008 Ford Fusion that she bought fully loaded when she had her employee discount (Ford employees pay cost) from working at Ford (she has since retired) and I will be paying her for it in cash. Not all of my family members treat their cars well, but at least with buying an older used car from my mom, I know it got all the scheduled maintenance and won’t die on me 6 months later from maintenance neglect, plus she wants to sell it to me at a far price.

    • Reply Johnny May 29, 2013 at 12:42 pm

      If there’s a fantastic financing situation to be had, and you’ll still pay it off in a speedy timeframe, then that would definitely be something worth considering. We’d still almost rather deal with it all upfront and know that we don’t owe anything to anyone. That peace of mind is worth quite a bit to us.

      Your mom’s car sounds like a dream deal. Definitely take advantage of that perk!

  • Reply Brian May 28, 2013 at 9:52 am

    If you decide you want to pay more than $5K for a car in the future just make car payments to yourself. $300/month adds up pretty quickly and can get you a pretty healthy car fund. My sister routinely buys my dad/mom’s old cars. My dad is a new car every 3 – 5 years kind of guy. Everyone can go ahead a try to tell him how that wasn’t smart financially and that is fine, but since I know his financial situation I know he is more than fine.

    • Reply Dennis May 28, 2013 at 9:54 am

      This. Paying for your car to yourself _before_ you buy it is so much better than paying for it to someone else _after_ you buy it. Shifts the whole perspective and lets you see the power of saving.

    • Reply Johnny May 29, 2013 at 12:46 pm

      Great tip. And if your dad can afford it and that’s something he enjoys, I’m all for that. I’m definitely not a purist. I’m sure there’s plenty of things that I buy that others would disapprove.

  • Reply Chris May 28, 2013 at 10:57 am

    I just recently paid off my truck. I had a pretty decent loan and my payments were pretty reasonable. That being said, I would pay cash next time. I also bought an ’03 in ’11 so the truck is already 10 years old. In the future I will try to follow a strategy outlined in “The Millionaire Next Door.” If you haven’t read that book it’s a good one. Buy 3 years old and don’t spend a ton of time shopping around for the best deal (because what’s your time worth). I also buy private if I can. I feel like I can get a better deal since they are just trying to beat the trade in value and I’m trying to beat the used car salesman value. Win-win!

    • Reply Johnny May 29, 2013 at 12:52 pm

      I’ve picked up the book a couple times, but I’ve never read past page 50 or so. It’s on my list. Just need a vacation to start making headway on it.

      I like dealing private too when possible. You can get a good sense of the owner’s care of the car when you go to their house and see how they treat other things, like their yard. Don’t judge me because I judge.

  • Reply The Norwegian Girl May 28, 2013 at 11:13 am

    I think it´s awesome that you were able to pay cash for both your cars! But I don´t think that will ever be “possible” for us, as cars are ridiculously expensive in Norway, due to crazy high taxes. A new Passat starts at $65.000! We don´t have a car right now, because we live in a big city with little possibilities of parking. But once we do buy a car, we´ll probably save up as much as possible, and get a small car loan for the rest. And we´re probably going to have to buy used of course! I guess we could get a decent used car for about $24-26.k.

    • Reply Johnny May 29, 2013 at 12:54 pm

      Woah! That’s a ton of dough. We didn’t have a car for 2+ years when we lived in NYC and Boston and we didn’t miss it too too much. But we were definitely happy to have a car again when we moved.

  • Reply Byron May 28, 2013 at 11:29 am

    This post is pretty useful as I’m in the market for a used car too. I agree with you totally that the priority needs to be how you are going to pay for the vehicle. Otherwise, financing that BMW 3-series starts looking mighty tempting even though I have no business doing so. I think another really important factor when buying a car for the long term is to consider its reliability. A car is a depreciating asset, and we might as well drive it into the ground for as long as it moves. But some cars (aka Japanese) are better built than others for that purpose.

    • Reply Johnny May 29, 2013 at 12:59 pm

      After we settled on price, our next consideration was reliability. Part of me really wanted to make our next priority the “cool” factor, but my head beat my heart and we ended up with a Corolla. Boring, sure. But it should drive as long as we need it.

  • Reply JMK May 28, 2013 at 1:52 pm

    I think there is another question that should be asked before the three above, and that is do we really have to replace our car now, or can we get a little longer out of it? If it’s unsafe/unreliable and cannot be made safe and reliable for a reasonable amount then yes, carry on with the other questions. Personally I think a lot of people see their car as a reflection of themselves so much that they refuse to drive a perfectly serviceable car that’s starting to show it’s age. I know I probably go overboard wringing the maximum out of my cars but in my world my vehicle just has to get me to work reliably and I absolutely don’t care what it looks like. We buy 3yr old vehicles with cash and drive them for 10yrs. At this point we need 2 vehicles so we have them on an alternating schedule so that one is due for replacement every 5yrs, never at the same time.

    There were some comments above about cash being ideal but if you get 0% financing or something close then that was fine. Personally I disagree. For me in addition to the savings on the interest, the most important reason to pay cash is that you own the car. Period. If you lose your job tomorrow you are not on the hook for a monthly payment (even a 0% interest one) that you can no longer afford. I’d propose the following. Save up the cash, then take the 0% interest deal and have the monthly payments draw from that saved car fund. If you lose your job the money was already set aside so no problem. In the meantime if you can earn a little interest on the cash sitting in the account it’s a bonus.
    In my mind, being able to afford something means you can pay cash for it, not that you can afford the monthly payments on it. The payment you can afford today may suddenly be unaffordable tomorrow but now you’re committed.
    Byron – I completely agree. I also ask the question, how long is this vehicle reasonably going to last? Since I drive my cars until they are at least 13yrs old that’s key to my selection. I’ve had excellent luck with Civics but there are probably plenty of other makes with a history of long lives. I don’t even consider resale value when I replace my car. I never sell them – the last place I drive them is to the scrap yard.

    • Reply Johnny May 29, 2013 at 9:45 pm

      Great additional question. In both of our car buying situations, we moved from cities where a car wasn’t need to cities where we needed at least one car, possibly two. And in both instances, we settled on just one car. But the answer to your question suggestion was obvious for us.

      I also agree with your comment on financing. I, personally, would only finance if the terms made sense AND we had the money to pay for the car in full at the outset.

      Thanks for the comment.

  • Reply E.M. May 28, 2013 at 4:05 pm

    It’s awesome you guys decided to buy with cash. I think your tips are great, and it is pretty much what I followed when I got my current car. My first car was a hand-me-down that my grandma originally owned, and then was passed down to my mom. By that time, it was running on its last legs, and as a new driver I wasn’t comfortable with the maintenance costs and the fact that it could break down and leave me stranded somewhere. So I definitely evaluated whether or not I needed a new car first.

    I wanted to spend the least amount I could while still getting quality. I had my dad come along with me because he knows cars, which was important so that I wasn’t buying a lemon. I ended up getting an 02 Civic with about 60k miles on it from a private owner on craigslist, and considering so many people say it’s a reliable car I was very happy. I didn’t think I’d find a Honda in my budget, but it worked out and I plan on keeping it as long as possible!

    • Reply Johnny May 29, 2013 at 9:55 pm

      Having a friend/family member that knows cars is invaluable. I need to recruit a friend with car chops for all my car woes. 🙂 For our first car, we were looking for Honda Civics, but all of them had 100k+ miles and most were in pretty lousy shape. It sounds like yours was a great find.

  • Reply Halsy May 28, 2013 at 4:50 pm

    I think following the advice of pay your car fund And not a lender until you have enough to buy the car you planned to. I would also say set a price limit and stick to it. Know what you want out of the vehicle and options. We have only bought a vehicle outright with cash at a dealer once. We bought a used nice truck at the end of the year and ended up selling it one year later for $500 more than we paid! December 31 is a great time to buy a vehicle! If you want a new car wait until end of model year when the new ones come out (August is a good month). This is what we did with my car and got the new vehicle at the price we had set aside for a 1-2 year old used model. We paid half of the car as a downpayment. Then we made large payments and paid it off within a year. That was 5 years ago and my Ford Fusion is still in great shape with only
    60,000 miles on it. This was the year to decide if we wanted to sell or keep. We decided we will keep until no longer works. Last year after 3 years with just 1 vehicle we decided since we were having a baby we needed 2 vehicles and wanted a larger vehicle than a car. We had enough saved to purchase the new Ford Edge but couldn’t part way with all our savings with the baby coming. So we decided it needed to be paid off by time she came. We paid half down on the vehicle got a super low interest rate. We made payments = to my monthly salary after tax and paid it off within the 6 months. We only paid $150 in interest so we felt it was worth it to have the piece of mind. In the future I would like to pay cash though. Also don’t forget to factor in sales tax when coming up with what you can afford!

    • Reply Johnny May 29, 2013 at 10:02 pm

      Great call on the sales tax. And if you’re shopping a dealer get the out the door price. They’ll try tacking all sorts of other fees on the price, but if you negotiate with them on OTD pricing, you don’t have to deal with negotiating every single fee.

      You guys did well. And I’m sure it felt great to own them outright so quickly. And like you guys, we probably need a second car now that the baby’s here. But we’re going to try and hold out with the scooter as long as possible.

  • Reply JW_Umbrella Treasury May 28, 2013 at 7:20 pm

    I like the three questions you outlined…and like Tina said, there is an important distinction between how much you want to spend and how much you “could” spend.

    Our most recent car was financed since we were just six weeks away from our wedding when my husband totaled his previous car. We could have paid cash for his car, but we felt uncomfortable with how much money was going out the door. Between the wedding and the down payment on the car, we were spending more money than either of us had ever spent before, and it was kinda scary! But we’re going to start paying down his car loan ahead of schedule. When it’s time to replace my car, I think we’ll be looking to pay cash.

    • Reply Johnny May 29, 2013 at 10:06 pm

      That seems like a very valid reason to go the financing method. As Joanna mentioned, every situation is different and while paying with cash is optimal, it’s not always possible. For the first two years of our marriage, there’s no way we would have been able to cover it with cash. It sounds like you guys have a good plan.

  • Reply Jake Erickson May 29, 2013 at 12:05 am

    These are great questions to ask yourself! My wife and I hope to pay cash for every car from here on out. The monthly payments are annoying and I’d rather pay ourselves a monthly payment (for a car fund). So many people just look at the monthly payment to know what they can afford. I don’t think most people even know how much they’ll end up paying for their car.

    • Reply Johnny May 29, 2013 at 10:10 pm

      The car folks have done a good job of brainwashing us into thinking about “$199/month” instead of “$20,000 car that costs $27,000 at the end of financing.” We feel fortunate that we were already on our get-out-of-debt horse when it came time to purchase our first car. Otherwise, we might still believe the $199/month method.

  • Reply Prudence Debtfree May 29, 2013 at 12:23 am

    Thank you for this post. I really like the questions you chose to answer as you considered buying a car – and the order in which you chose to answer them. We have never bought a car for cash, but next time we’re committed to doing so.

    • Reply Johnny May 29, 2013 at 10:11 pm

      It’s definitely something you need to plan ahead for, so it’s great you’re committed to doing it already.

  • Reply Becky @ RunFunDone May 29, 2013 at 9:29 am

    We have a car fund set up right now for when my ’99 hits the dust. I’ve been delighted by how long my car has lasted! I paid $3,500 for it 7 years ago and it’s still running with few repairs! I’ve been considering buying a low-cost new car when the time comes, but you’re making me reconsider!

    • Reply Johnny May 29, 2013 at 10:13 pm

      Woah! That’s an awesome ROI. We looked at low cost new options, but we just couldn’t fork over the extra $5000-$7000. So we settled with a two year old gently used option. Hopefully the ’99 keeps chugging another 7 years.

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