Why Is It Suspicious To Buy A Car With Cash?

Part of the reason a dealer may turn his nose up at cash is profit. It seems counterintuitive, but dealerships can make far more money if you don't pay for a car entirely in cash up front. Vehicle financing, while not offering the lump sum of an outright car purchase, can get dealers a higher level of profit over time. Lenders may also incentivise dealerships to encourage financing options by offering them a small percentage.

There are two forms of vehicle financing: loans and leases.

What is a Car Loan?

A car loan involves going through a lender to finance your car, with an interest rate set based on your credit score. You'll make monthly payments to this lender until the principal, or the outright purchase value of the car, is paid. These payments will include that interest rate, so you'll end up paying a bit more than the car's value by the end. This extra cost is usually worth it though, as it helps soften the blow of making such a major purchase. You'll get to drive the car during your loan period like it's yours anyway, and once the loan is paid off, the vehicle will legally be in your possession.

What is a Car Lease?

A car lease is similar to a car loan, but with the dealership usually being the entity lending you the capital. You'll get an interest rate just like you would with a car loan, and a set term limit within which you'll lease the car. This allows you to drive a vehicle for a couple of years, and if you don't like it, you can switch it out for something new. Much like with car loans, this is a good option for someone with a more limited budget who still wants a high-quality vehicle.

How Can I Calculate Lease or Loan Payments?

If you decide to lease or finance a car instead of purchasing one outright with cash, you can calculate your payments using free tools like the one from GoodCar. This calculator is essential for those who are operating on a budget and want to see which vehicles will fit with their income. Getting this information ahead of time can help you determine what features you can have on your vehicle, what mileage range you should shoot for, and what terms you should set for your lease or loan. Calculating your payments ahead of time can also assist you with negotiations; if you know what your limit is, you'll be able to discuss that budget with your dealer and try to come to an agreement that works for all parties.

There are a few very reasonable causes for a dealership to refuse a cash deal. Yes, cash is legal tender, and you should be able to purchase a vehicle using entirely paper currency. Unfortunately, most areas give private businesses the right to refuse service for any reason, and a dealership may deem your big pile of cash too sketchy to accept. So why would they do this? There are three primary reasons that cash is a bit more suspicious:

Cash is Easier to Fake

While creating a fake credit card that you could actually use is nearly impossible, the world is filled with counterfeit paper currency. Outside of a bank, many forms of fake currency go entirely unnoticed; without the trained eye of an expert, you are likely to miss the subtle clues that help identify fake cash. A dealership knows this, making them apprehensive to accept a duffel bag full of crisp hundred dollar bills. Tracking down someone who has provided fake money and false information would be difficult, and most dealers would rather just use a more reliable form of transaction like credit.

Cash is Often Used By Criminals

Due to the far lower traceability of cash, it's no wonder that it is the primary form of transaction used by criminal organizations. Of course, everyone who uses cash isn't a criminal; authentic paper currency is legal tender, and almost every citizen of a country will have to use cash from time to time. But for criminals, using cash allows them to profit from illegal activities while hiding their revenue from law enforcement and the IRS Purchasing a vehicle with cash could be a great way to offload ill-gotten gains, and turn them into a legitimate purchase with verifiable paperwork.

Cash is Easily Stolen

Outside of specially marked bills like those in certain banks and reserves, there is almost no way to tell when a single piece of paper currency has been stolen. That's why, for the most part, no one leaves a majority of their net worth in actual cash anymore. Anyone who finds your paper currency can take it and claim it as their own, and it would be next to impossible to prove that it was yours. Dealerships know this, and in addition to the need to avoid accepting stolen cash as payment, they don't want to have a large pile of paper currency just sitting around. This could make them a target for theft, forcing them to have a higher level of security to keep the cash safe.