Why don’t I get a discount for cash?

Car buying advice
Car finance advice from The Car Expert

In the good old days, your best way of negotiating a discount when buying a car was to roll up to the dealership with your cash in hand, ready to do a deal on the spot. These days, most dealers won’t even touch your money, let alone give you a better deal for paying cash rather than financing. What has changed?

Matthew from London asks: “Trying to buy a new VW Golf for the wife, and none of the dealers will give me a sensible discount for cash. They keep pushing me to take their finance instead. Don’t they want my money?”

Matthew’s question is one that many people ask about buying a car. The reality is that there are no special deals for cash at large dealerships, and even the smaller dealerships are becoming less interested in “doing a deal for cash”. So why is this the case?

Cash is no longer king in car sales, whether it’s the actual folding paper kind or the electronic equivalent. In the 21st century it’s all about finance, for a few reasons.

Cash is a security issue

Handling large quantities of cash is not considered safe by car dealers – or their insurers. Not only is there a risk of burglary and theft, but there is also the growing problem of money laundering and counterfeiting. As a result, very few dealers will accept more than about £1000 in cash these days and some won’t even let you pay anything for a car in actual paper money.

Cash is a no longer an easy tax dodge

Back in the day, it was easy to take a lot more cash than you ever declared to HMRC. In the 21st century this is much harder, plus HMRC tends to watch cash businesses like a hawk. If you are a small trader selling low-value cars, then you may be able to fudge a bit here and there, but if you are large franchised dealer then you have virtually no chance of getting away with tax evasion from undeclared cash payments.

What about electronic transfer?

Transferring your money via BACS or CHAPS (or any other method of sending it from your account to the dealer’s) is how you generally buy a car with cash these days. But it still doesn’t guarantee you a cracking deal to have your money ready to send at the click of a button. That’s because it’s much better for the dealer if you finance the car through their ‘preferred’ finance option.

Why is finance better for a car dealer?

1) First and foremost, car dealers sell finance because they make a profit on it. This is something that most customers tend to forget. Negotiating a deal on a car isn’t all about the sticker price – the dealer may well be making more from selling you finance than selling you the actual car. Everything you can buy in a dealership has a profit margin, whether it’s a car, a service, a baseball cap or a finance or insurance product. If it didn’t make them any money, they wouldn’t be selling it.

2) Car dealers are incentivised by the manufacturers and finance companies to sell a certain amount of finance, just as they are with selling cars. If the dealer sells a lot of finance, they get a kickback. If they don’t sell enough to meet their obligations to the manufacturer, there can be significant financial ramifications.

3) It allows people to buy more expensive cars. If you have £10,000 in cash to spend on a car, you can buy a reasonable second-hand car or a very basic new car. Or you could pay up to £10,000 up-front, and then £300 per month for the next three years. and have yourself a much more expensive car. This lures thousands of buyers into more expensive vehicles, which is good news for dealers as more of their customers can afford to buy more of their stock.

4) Most car finance offers are based on a PCP or PCH (lease) agreement, which encourage (PCP) or force (PCH) you to change your car in a few years, rather than keeping it indefinitely. This means that there is a good chance you will be back in the dealership in about 3 years’ time looking for another car. So the dealership is setting themselves up to sell you three or four cars over a period of time, not just the one you’re looking at now.

5) Most PCP or PCH finance agreements require you to service the car with an approved dealership as part of the car’s hand-back value. If you are buying the car with cash, they can’t force you to do that. Therefore, they are guaranteeing work for their own service network for finance customers.

6)  The manufacturer and/or finance company often kick in money to provide additional discount or “deposit contribution” on the vehicle. Not every dealer passes this money onto the customer, especially if the customer is not aware that it’s on offer…

So as you can see, there are some very significant reasons why a dealer would much rather sell you a car on finance than simply take your available cash. As such, they will almost certainly be more interested in negotiating a better deal if you are taking finance.

What does this mean for me?

As with any negotiation, knowledge is power. And as with any car purchase, it’s important that you recognise your own limits of affordability and don’t overspend. But there are opportunities to get a better deal by taking advantage of car finance offers, even if you don’t really want to finance the car.

Firstly, any finance agreement has a 14-day cooling-off period. So if there is an additional discount on the table for financing the car, you can take out the finance, pick up your car and then promptly cancel the finance. The finance company will immediately invoice you for the amount financed but there will be no fees or charges or interest. So you save on the purchase price and don’t pay any interest.

Secondly, there are plenty of low-rate finance offers around, even some that are 0% APR (which is genuinely free from both interest and fees). It may be that the total overall cost of purchasing the car on finance is not that much more than paying for it all upfront.

The point of this article is not to try and convince you to finance your next car, as The Car Expert is neither for nor against car finance – it all depends on your circumstances. However, you should always consider all of your options to ensure you are making the best decision. At the end of the day, you want to get the best possible car for the best possible price, so do your sums carefully before committing yourself to anything.

Stuart Masson

Stuart is the Editor of The Car Expert, which he founded in 2011, and our new sister site The Van Expert. Originally from Australia, Stuart has had a passion for cars and the car industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

13 Comments

  1. Hi Stuart

    I’m planning on buying a user Mercedes and was wondering what sort of price would you offer on a 38-40k car which I am hoping to haggle down on price, plus realistically what savings could i expect on haggling the dealer?

    Reply
    • stuart

      It all depends on how much they want to sell the car. If it’s been sitting on the lot for a while, they’ll do a better deal to get rid of it. If it’s just arrived in the last few days, not so much. There’s no hard and fast rule.

  2. Hi Stuart,

    When does the 14 day cooling off period start from? If the car takes 3 weeks for the dealer to get to the dealership from the manufacture and one signs the paperwork before the car is ordered, does the cooling off period start from when the dealer has run checks and got approval for the financial contract or from when the keys of the new car are given to the owner and what would be the best way of cancelling the financial contract and how long would you then have to settle the cost in full and would they have a clause somewhere in the paperwork saying they could withdraw the deposit contribution and cheap services if included??

    Sorry for all the questions but I can't help think that the manufactures and dealers have ways round the 14 days cooling off if it's going to cost them money.

    Many thanks for your anticipated reply.

    Reply
    • Stuart Masson

      Hi Allan. It is unusual for a customer to be expected to sign a finance contract several weeks ahead of the car's arrival – most dealers will want to do it a few days before delivery. The 14-day rule should apply from when the contract is activated, which is when the finance company pays the dealer. If you have a signed finance contract already, there should be a clause which explains it all and gives you a contact number to speak directly to the finance company rather than the dealership.

      Have a read of our article about <a href="https://thecarexpert.co.uk/what-is-deposit-contribution-asktce/">deposit contributions</a> for more information.

  3. Hi I wanted to leave another post as I asked for some help from you a while ago and it was invaluable – thank you! I can't find my original post now but I wanted to leave an update in the hope that it might help someone else.

    A couple of months ago I had got the money saved that I wanted to spend on a second-hand, quite rare model of Polo, after doing loads of research about what I wanted.
    After keeping a close eye on Autotrader, I visited my three reasonably local VW dealerships. At the first one they didn't appear to want to sell any vehicle to anyone who walked through the door. The second got me to go there, only to try to convince me to buy a brand new car, all of which could have been done on the phone or email as they didn't look at my part-exchange and they didn't have the model of the car they wanted me to buy blind!

    The third dealer was the only garage close by that had the car I wanted (the few others were all around 200 miles away!). The car was overpriced but the 'deposit contribution' brought it in line with what it should have cost, and the salesman refused to reduce the price for anything other than buying it on finance. He did the usual 'you're better off buying on finance' spiel – even though there is no possible way that can be the right choice for every customer, when they don't know anything about each person's individual situation! He told me that FSA regulations meant that he wasn't allowed to give me the APR and other figures that buying the car on finance would cost – just the monthly payment. He said that the APR would be "about 5 to 6%". Eventually worn down by having been there for hours and being so hungry I couldn't think straight, I agreed to the finance and after signing a few forms was told that meant I would have to make an extra trip to the dealer to sign the finance paperwork, which meant an extra two-hour round trip and a precious extra half-day of work. I went back to sign the paperwork, which a different person handled. He asked if I had had finance before and when I said no, he said "Well, you know that the finance you're getting is for a car, not a house extension or something like that?". He seemed to think that covered everything as he then ticked all the boxes on a sheet of paper and handed me the pen to sign the finance agreement. I told him that I was going to read through the paperwork, to which he looked very surprised and said I could if I wanted to. The APR was 12%, which would have meant I was paying about £4K extra for a car that I had the money in the bank to buy outright. By now I was totally convinced that I didn't want to get tied into the agreement, so I took extra care making sure that there was a valid 14 day cooling off period, which there was. Previously agreed gap insurance and the car tax were both included in the finance – I had already asked them to remove the gap insurance and the salesman said that I would get back more in the cashback they owed me – both of which meant I would be borrowing money I didn't need and paying interest on it.

    I went back to collect the car, leaving my part exchange. You said that I shouldn't leave the garage without the balance of my part exchange but they said that they didn't have the money, it came from the finance company. So at this point the dealer had my old car, and the finance company owed me the cashback – in no way a customer-friendly situation. By now I was so traumatised by the entire experience that I just wanted to get my new car and go.

    The night before I'd gone to sign the paperwork I was on the verge of a panic attack all evening and couldn't sleep. I cannot understand how buying a car could turn out to be so stressful – I have bought loads of second-hand cars before and never felt like this. I am absolutely over the moon with my Polo but the rest of the experience was awful. I've never bought from a main dealer before and I really hope I never have to again. Unfortunately I'm always so set on exactly what I want, which usually is quite a rare model of the car, that it puts me in a potentially negative position of only having a few options to choose from. As far as I'm concerned I should have left all three VW dealerships as a fan, even though I didn't buy a car from the first two. I should have been impressed to the point of recommending those dealerships to friends and family but they just don't seem to be bothered about their brand in that way! Absolutely crazy!

    Anyway I will leave this essay now, there is a lot more I could say but I have tried to keep to the main points. Thanks again for your brilliant articles, your advice got me through this experience and meant I got what I wanted. If I hadn't known about the 14 day cooling off period I hate to think that I would have got stuck in the awful deal they lied to lure me into.

    Reply
    • Stuart Masson

      Wow, you really got some bad service – not to mention the outright lie of "I'm not allowed to tell you the APR and other details". FCA regulations specifically require them to give you the APR and a complete breakdown of all the numbers. It's perfectly normal that you have to make another trip to sign the finance docs, but that should have been explained up-front.

      You are absolutely right that the experience should be an enjoyable one – you're buying a new car and it should be an exciting time. It shouldn't be difficult and stressful and you shouldn't be pressured into taking finance when you have made it clear that you don't want it.

      I'm very glad that you found the information here to be helpful, and thank you for coming back to tell us how it was able to help you with your purchase. Best of luck with your new Polo.

    • Thank you! Like with a lot of these things, it was all worth it in the end, thank goodness! The actual process of paying off the finance was very straight forward and the staff at the finance company were all really friendly and helpful. I'm just so glad that I stuck to my guns and didn't buy something I couldn't actually afford, as that would have meant I was stuck with the finance whether I liked it or not.

    • Stuart Masson

      Good to hear – which finance company was it?

    • It was VW Finance. It was the first time in the whole process it felt like someone was being honest with me and toeing the line from the point of view of following legal processes and not being misleading!

  4. Hi Stuart, hoping you can give some advice

    I am looking for a cheap car to travel to work doing about 70 miles each day. Thinking about buying a 2011 Citroen C1 and the average price i am seeing online is about 3,200.

    How would you look to try and get the best price on this car from a dealership. I am open to paying for the car in full up front but as you say, the dealer may be more reluctant to give discounts based on no finance deal.

    Thanks

    Reply
    • Stuart Masson

      Hi Scott. If the car is being advertised at £3,200, there’s not going to be a lot of room to negotiate as there’s simply not that much profit in the deal. Maybe a few hundred if you’re lucky.

      It is far more important to assess the quality of the vehicle, look at the service history and find out when it’s next due for a service, check the condition of the tyres (matching makes? even wear all round?), MOT history (check for advisories which may be expensive very soon), and so on. Any unexpected bills here could easily dwarf the savings on the purchase price.

  5. Hi Stuart,
    I’m looking to buy a nearly new car and keeping a eye on autotrader. Several times I’ve found a car which seems to be a really good price (But not stupidly so), unfortunately they are a fair distance away. When I contact the dealer they are always really keen, until I mention I am not interested in any finance deal, then a few hours later, it’s oh sorry the car has been sold.

    Do you thing no this is some sort of trick they play or I’ve just been unlucky?

    Cheers

    Reply
    • Stuart Masson

      Hi Ian. It’s certainly possible – are these cars being removed from Auto Trader after you have been told that they are sold?

      You don’t need to disclose your payment preference before viewing the car. If they ask, you can either play along or simply advise that you are keeping your payment options open at this stage and will worry about that once you have found the right car.

What are your thoughts? Let us know below.

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