One of the biggest misconceptions when buying a new car is that you will get a better price when you are paying with cash. This may come as a surprise to you, but it is simply not the case. In fact, a commonly asked question by sales managers to the salesperson trying to further discount a car is “How are they paying for the car”. If the answer to that question is “cash”, that sales manager’s hands might be tied to accept the offer. This may seem counter intuitive, but there are some very good reasons behind this.
Paying cash does not offer any additional guarantees to the dealership. In fact, paying cash can sometimes be slower for the dealership than payment through financing. When a vehicle is financed through one of the lender partners the dealership is paid by electronic funds transfer, sometimes the same day or day after you have picked up your vehicle.
Dealerships do not accept large amounts of cash. Many customers ask to use debit or credit as their form of payment but those come with processing fees to the dealership. Paper cheques have to be brought to the bank and processed by hand. Cheques can get lost or have errors that prevent processing. All of these make financing the more attractive option for the dealership.
The dealership does not get a portion of the interest that you pay on your loan. It’s surprising to see how often customers believe this to be true. The dealership acts as a bridge between the customer and their financial partners. They will help negotiate the terms of the loan and help you communicate with the lender if that need arises, but after being paid for the vehicle itself, the dealership does not receive any portion of the payment you make monthly.
The lenders want your business as well, so more manufacturers are getting away from offering additional discount incentives to pay cash. Instead, they offer their discount through significantly discounted interest rates to make the cost of financing your vehicle more attractive than either using personal financing or savings to pay for your vehicle. The lenders also tend to reward volume. The more business they see the more apt they are to make exceptions to the terms of the loan to help you get the best deal.
Lastly, dealers know that customers are more likely to add vehicle protection products like warranty, rust, and insurance to financing than if they are paying cash. This is because financing allows the customer to pay for these products as part of a payment plan rather than as a lump sum. So, if we go back to that salesperson presenting his offer to the sales manager, financing the purchase could be the difference between getting a yes or a no on accepting a tight deal.
At Car Loans Canada, we’re here to help answer your questions. For more information on financing fill in our application or speak to one of our representatives.