We bought a van last week. I know for families with more than your average number of kids that is a rite of passage, so I guess we’re “in the club” now…the I-drive-a-minivan-and-like-it club. Although it doesn’t have flames painted down the side, a hemi under the hood or a stereo that will let everyone hear you from 3.4 miles away, I’ll have to say that I’m happy to have bought it. More importantly, it is paid for. We don’t do payments around here. If we can’t pay for it, we aren’t buying it. So how can we pay cash for all our cars?
Side note: I’m assuming you already know buying a used vehicle is by far a better choice financially than buying new. And leasing makes no mathematical or common sense 99.9% of the time. But I also thought I’d better add that note just to be clear on where we stand on the matter. 😉
First, let me give you some specifics. The van is a 2008 Honda Odyssey EX-L. It is a one-owner and has 76,000 miles on it. We paid $14,700 (which includes way too many of those lovely required taxes and license fees the state feels appropriate to charge because you had the “privilege” to purchase a new-to-you vehicle. Tell me again why all those fees apply to used car purchases? Anyway, I digress.). I dragged my brother along for transport (thanks Brian!) and drove to a little town in South Carolina, about 3 hours from home, to get it. And I took a stack of $100 bills with me to pay for it.
This van is the fourth vehicle we’ve paid cash for so far, and here’s the process we’ve followed to pay cash for all our vehicles.
1. Start with your budget
As obvious as it may sound, most people start by looking around to see what cars they like. Guess what? I’d like a Porsche 911 GT3. But guess what else? It isn’t in my budget, and it won’t hold enough car seats. If you start with your budget in mind, you can be a bit more grounded in your search.
2. Check your pride
I’m not going to pay extra so you’ll be impressed when you stop beside me at a traffic light. A car is a depreciating asset. It WILL go down in value so pouring a bunch of money into a vehicle solely on how cool it may make you look is a poor use of your hard-earned money. A car’s benefit is its ability to get you where you need to go in a safe, efficient and somewhat comfortable manner. That’s it. Don’t get me wrong – I want you to have nice stuff. Just don’t buy based on pride.
3. Set a savings plan
I dedicate an entire chapter in my book on how to break the cycle of car payments. At the core of it is the process of setting a savings plan. There is no magical formula to paying cash for a vehicle – just disciplined, incremental baby steps repeated over and over again. When I bought my 2008 Taurus a couple of years ago I explained the basics. Simply put, you must decide that a certain portion of your income every single month will go toward breaking the cycle of having car payments, even if that means sacrificing for a while.
4. Be patient
Most of the time, rushed decisions are bad decisions. Finding the right car may take you a few hours or it may take several months. We’ve had our eye out for a van for a few months and yet it was within the course of a couple of hours we decided on the one we bought. Recognize that with very few exceptions, there are literally hundreds of vehicles that could meet your needs and so if you happen to miss one because you are moving slowly and steadily, another one will come along.
5. Don’t trade in…sell it yourself
If you are replacing an existing vehicle and go to a dealer, they are going to want you to trade in your car. Don’t. In almost every case, you’re going to get a lot more money and make a lot better deal for yourself if you sell the car on your own. Yes, there is hassle factor involved, but there could easily be thousands of dollars of difference between what a dealer will give you on trade and what you could sell your existing vehicle for on your own. The hassle is worth it.
6. Know the value
It is pretty easy to go on kbb.com and look up the value of any vehicle out there. Although there are things to consider like the condition of paint, tire wear, little things that don’t work, etc. that may change things some, you shouldn’t have any trouble knowing approximately what a car you’re eyeing is worth. This will also help you stick to your budget because most things are overpriced (I know you’re shocked).
7. Stick to your guns
If you buy a car, you are going to be involved in negotiation…unless you want to pay full price. But does anyone want to pay more? I don’t. If you go into the discussion on purchasing the vehicle armed with your budget, knowledge on the vehicle’s value and a level head, you can save yourself a bunch of money. If you’re dealing with a dealer, remember the salesperson does this every day. She/he’s an expert (or should be). Don’t let him (or her) sway you into making a choice that you shouldn’t be making.
8. Don’t pay fees
Just about every dealership is going to have a “standard” documentation fee, dealer service fee, or some other silly add-on fee that they “require” for every purchase. That is baloney. A dealer lost my business because he refused to waive a $599 (yes, almost $600!) dealer service fee. When I politely told him that fee needed to go away, he said he couldn’t waive it under any circumstances. I told him he could write it up however he needed but I would not be paying an extra $600 to buy his van. He wouldn’t budge, so I walked away. Don’t fall for that trap.
9. Avoid the hype
There are all kinds of awesome technologies available on cars today that weren’t there on last year’s model. And next year, the same can be said. Every year, technology and innovation change cars (supposedly for the better). If you’re committing to buy based on your budget and based on a reasonable assessment of your needs and wants, you likely won’t be buying something top of the line (although it is okay if you do) or with all the latest technological innovations. Just don’t fall into the trap of saying “I NEED {insert random option here}”. As an example, our van does not have a built-in vacuum cleaner or run-flat tires. It doesn’t have navigation or push-button start. It also doesn’t have a flux capacitor. Oh well…I guess I’ll have to lug the shop vac every so often, change my own flat tire if it occurs, use my phone GPS if I get lost and turn the key to make it start. And I guess we won’t be going back to the future anytime soon. We’ll probably survive. Maybe.
10. Keep it
You know those fees and taxes I mentioned early on in the price I had to pay for our van? You know, the ones the state/city/county charge? They are pretty much unavoidable and are a completely sunk cost. What does that mean? No matter how good the deal is on the vehicle, you’ll pay a bunch of extra money to the government just for the privilege of buying it. Congratulations. The only way to make those fees worthwhile is to hang on to a vehicle for a while. If you are buying and selling cars all the time, you’ll end up wasting a bunch of money you shouldn’t be wasting. Simple as that. So if you’re buying, plan to keep it for a while. Remember, a car is an expense…a depreciating asset that only costs you money. The benefit it gives you is maximized when you buy it, take care of it and hang on to it for a very long time.
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I LOVE YOU PEOPLE!!!! Our family pays cash for everything including our houses,zero debt,(amazing how many people think making a mortgage payment makes you a homeOWNER). I cannot believe the people who make great money that dont “own” anything. I tell people all the time that ANYBODY who gives you a loan is not your friend. It is very frustrating to me that the fact that idiots who finance everything don’t care about the COST just the payment and this is a reason the cost of everything is so expensive ( that and the highly increased money supply that isn’t worth the paper it isn’t printed on). It will be interesting to see what happens when the coming currency crisis hits. I digress, it IS NICE TO HEAR OTHERS PAY CASH, it’s just too bad there aren’t enough of us to save the economy when the s–t hits the fan.
Sorry, one more thought. I know many people who pay cash for brand new cars. Still sell your old one outright always check 3-4 dealers and don’t be afraid to walk away if too many fees. Strength in numbers. If 10% of new car buyers paid cash and did not buy if the deal wasn’t right( the manufacturers would probably have the politicians they own outlaw paying cash for a car. Lol) I’ll bet there would be some better deals.
We have bought 5 vehicles with cash in the last 8 years. A few of them were beaters that only lasted a few years, but with no car payment it was completely worth it. Great tips and motivation! Thank yo for writing this!
One of these days I’ll get the “u” key fixed on my keyboard…
Thanks for this excellent advice. I hadn’t heard about the various dealer fees.
They don’t want you to hear about them. LOL 🙂
We haven’t had a car payment since 1999 and the peace of mind we have beats any “inconvenience” we’ve ever had driving a used vehicle. We sold “Bessie” our beloved Subaru wagon last winter for $400. We bought her for $5,000 11 years ago and milked her for all she was worth.
Way to go! $4,600 for 11 years worth of driving is a bargain. The haters will say, “yeah, but you had repairs and maintenance.” Yep…and new cars require maintenance and break every now and then too. 😉 Keep it up 🙂
Ever hear of a cashiers check? I would never carry that much cash. We have paid cash for 3 cars now and always give a cashiers check. We’ve never had any problems.
Why yes, a cashier’s check is an option. The last three vehicles I’ve purchased have been out of town and so I’ve gone with cash not knowing if I’ll actually make the purchase and/or whether there will be additional room for negotiation. In 2 of the 3 cases, I was able to wiggle a bit more on price, which I couldn’t have done with a cashier’s check. Additionally, if I didn’t buy, I would have had to go through the hassle of a stop payment and reversal of the check with my bank. Cash is way easier with those unknowns.
So if a family is in immediate need of a minivan and does not have 10-15K saved, would you recommend they buy whatever they can with the cash they do have (say, less than 3K)? We are not quite in that position (our minivan hasn’t quite died) but a good friend is. And we have been discussing this exact question. 3K isn’t going to buy you much of a minivan and it is a vehicle that will be filled with 5 kiddos so it’s really not ideal to be breaking down a lot. Hubby’s promotion is on the horizon so they are hopeful that in 2-3 years they would be able to save and pay for a better minivan. … But in the meantime it feels like such a gamble to buy a minivan at that price point. Other vehicles, sedans for example, that’s different…I think you could get a decent one for under 3K. Also this would be using the majority of their savings, which is never a good feeling when 5 kids are involved. I know you may have comments for choices they’ve made along the way, but I would also be interested in your comments to the specifics of where they are now.
I think your 11th point should be “pray.” I pray almost every time I drive our minivan that it will keep going until we are ready to buy a better quality one, and I pray that God will provide it when the time comes. The cost of minivans weighs so heavily on me. We have always paid cash for our vehicles as well…but I am so longing for a more dependable minivan when the time comes and I’m not sure if the money will be there in time. 🙂
I hope many find encouragement and challenge in this post. Thank you.
I agree wholeheartedly on your 11th point idea. I write from a Christian perspective, but I generally don’t include those types of things simply because I want non-Christians to tune out because I was “too religious” (their words, not mine).
My book covers in detail how I recommend to break the car payment cycle, but a summary of my input there can be found in a post I wrote a while back: http://www.stacymakescents.com/buying-a-car-with-cash
Hi Barry. What kind of savings/investment account do you use while saving for the next car? We’ve been saving so we can buy our next car with cash and it’s in a money market account earning very low interest. It’s frustrating that so much money is sitting around not earning much but we don’t know where to begin looking for something better.
Sarah, I agree it is frustrating to not earn much interest on a lump sum like that but we just kept ours in a savings account. Why? Because the goal was to always have it safe. Where any investment MIGHT earn more interest, it is also going to present some risk. Don’t forget the difference in savings and investments. Savings are for short-term and are always focused on making sure the money is there if/when you need it. Investments are focused on long-term growth and you can ride the ups and downs that investments bring (whether stocks, bonds, mutual funds, or anything else).
With the banks getting away with paying us almost NOTHING to use our money anyway, I recommend that EVERYONE American withdraw about 25% of their money and find a great hiding spot safe from theft, flood,fire etc.. That would remind the banks who’s money it really is. I’ll bet they would pay more interest to get it back!
Great info… but where are the tips too but with cash? Especially off you currently have a car loan…
I get into a lot of that in my book on how to break the cycle of car payments and save up for a car so as to never have to finance again. Without trying to make it sound like too much of a sales pitch, I’d recommend you check out that chapter in my book. http://amzn.to/1U6uD1T
Excellent post and well-written! I read it aloud to my husband and it sparked much great discussion! Thank you! Cheeryshirley
We thought we were pretty used-car-buyer-savvy but after reading this post realized we’d never heard about the dealer service fee. Just two days ago we started shopping for a new (to us) car. We’ve saved up the cash (yea!) and will now be better prepared when we’re ready to make an offer. Thank you so much for potentially saving us around $600!
YAY! I hope the input helps. What you will find is that it is common for dealers to refuse to waive that fee, but they will adjust in other areas. For instance, on ours, there was a dealer service fee of $299, but he adjusted more out $300 off the price when I told him he could list it on there but the money had to come from somewhere other than my pocket because I wasn’t going to pay any processing fees beyond the ones required by the state.
Try to buy cars from individuals for just above what the dealer is giving them on trade in. The dealers pay very little for trade ins and mark them up by thousands.
Awesome! Stacy has been dreaming of this van for awhile :). Great tips, especially the don’t trade in one. That’s usually several thousand dollars right there. Our van is a 2001 and we’re hoping to step up this year. I’ve heard Honda Odyssey’s are good ones.
Honda Odyssey? Uh-oh. Did you look up reviews on the transmission? I was afraid to buy an Odyssey for that very reason. We ended up sticking with a 2005 Sienna.
We managed to talk the lady down to $4,000 (and she is a real estate agent, too!) because of the work that needed to be done (just normal wear and tear… and the timing belt hadn’t been done yet and BADLY needed to be). Then we went and bought all the parts and my dad and husband fixed it up themselves to save the hourly mechanic fees. The timing belt was tricky, though. Stupid Toyota decided to have metal bolts on an aluminum motor mount bracket which of course was corroded and was a NIGHTMARE to get off. It took them HOURS of heating with a torch and then pounding the crap out of the bolts to get them out (and of course having to pay $16 each for the two bolts to replace). And then when they finally got everything apart, the timing belt came loose so they didn’t touch it after that for fear of doing it wrong. So it got towed to a mechanic friend of my dad’s. Ahhh the joys of DIY.
DIY is fun…and sometimes NOT fun. I did a lot of reading before we bought the ’08 and supposedly Honda replaced the transmissions in ’07 to be similar to what goes in the Ridgeline. Fingers crossed.
That is *mostly* what we did when we bought our 12 passenger van a few months ago. We paid cash (or else Stacy might not be my friend, right? ;-)), bought used, but just barely (10k) because we want to keep it forever. We could have spent less on something with higher mileage, but we’d have just been doing it again that much sooner.
We waited a year and a half after having enough cash to find exactly the right thing at the right price. That’s a long time to pack 6 kids in boosters and carseats into a Sienna, I want you to know. We couldn’t even fit both parents in at the same time, but it was worth the wait to get the right price AND the exact thing we needed.
What we didn’t do the “right” way was sell our old van privately, since CarMax inexplicably offered us about $500 more than I was able to get privately. Go figure. That’s really unusual, so selling your own is still the better way, I agree. Also, since we did go to CarMax, there was no haggling. Again, not always the least expensive way, but we were blessed with a very good deal. And it might be worth a few hundred to not wonder if you got the best price they could give you. That always kept me up at night in the past.
I LOVE my gigantor van. That’s a surprise. It was the part of having a large family that I feared the most.
I do want to say that you’re a brave man, taking a stack of 100’s when the police are so happy to relieve citizens of any large amounts of cash found on their person, just in case the money committed a crime. They’re so kind and protective that way. You would definitely not want to do that in Tennessee, for instance. Guess it’s a little bit safer in VA. 😉
Ha! Your comments always crack me up. I had the bank slip from where I did the withdrawal so that probably helped me in carrying a large amount of cash. That said, I never consent to voluntary searches so I’d have to be breaking some sort of law before the police would have searched me or my vehicle, right? *snicker*
Right. Sure. 🙂