Can you buy a car with cash?

Wondering about the implications of buying a car with physical currency, or using a one-off payment rather than a finance agreement? Wonder no more. And when you’re done reading about how to use cold hard cash to buy your next car, have a look at how Carwow can help you get the best price when you do take the plunge.

It used to be said that ‘cash is king’, but in today’s world of car buying there’s an argument to be made that it has perhaps been demoted to the status of prince, or possibly baronet.

This is partly because cars are such expensive items that paying cold-hard physical cash is often impractical, and partly because finance agreements such as Personal Contract Purchase are commonplace on both the new and used market, and can be more attractive for a number of reasons.

That’s not to say people don’t or shouldn’t use cash to buy cars, and here we assess restrictions surrounding this type of transaction, as well as the pros and cons.

What is meant by buying a car with cash?

First, we need to clear up some confusion caused by the double meaning of ‘buying a car with cash’ – both of which we will cover.

Buying a car with cash can mean two things:

1. Using physical banknotes (or coins, if it’s a really cheap vehicle) to purchase a car.
2. Making full payment for 100% of a car’s sales price using a bank transfer, cheque, debit card or similar. This is opposed to using a finance agreement to buy a car.

Can you buy a car with cash?

We’ll answer this question one at a time, for each of the meanings.

Can you buy a car with physical currency?

Yes, though in practice you may not always be able to.

If a used car costs, say, £2,000, a dealer or private seller may well be happy to take cash for it – though it’s worth checking this before going to see the car.

If you are buying a car for £100,000, there is nothing legally stopping you from drawing that amount out from your bank and presenting it to a car dealer in exchange for a vehicle.

As you might suspect, however, most dealers are unlikely to be keen on accepting that sort of cash, both for the security risks it presents, and because a £100,000 cash payment raises all sorts of questions with regards to: a) whether the notes could be counterfeit b) why someone would have that sort of cash on them, and c) why they would not rather make a traceable, electronic payment instead.

Furthermore, a car dealer that accepts cash payments of €10,000 (£8,700) or more will be classed as a “high value dealer” by HMRC, and can be held liable if they do not “take the steps necessary to protect their business from money laundering and terrorist financing.” This places a fair weight of responsibility on such a dealer, so many may simply be unwilling to accept cash payments over a certain amount.

As a side note, legitimate banknotes may be classed as ‘legal tender’, but this doesn’t mean a business has to accept them for payment, only that they must be accepted to settle a debt.

Can I buy a car with cash instead of finance?

Here, we’ll consider making a bank transfer or debit-card payment (though not a credit-card payment) for the full value of a car, and you may be unsurprised to learn that the answer is ‘yes’.

You may find your bank has limits on how much money can be paid in a single transaction within 24 hours if you’re using mobile banking, so check before you commit to buying a car over a certain amount (say £10,000).

If the car you want to buy exceeds your transaction limit, you may need to make use CHAPS (Clearing House Automated Payment System).

Do also note that dealers may be less willing to incentivise an outright cash purchase compared to if you use finance. This is because finance arrangements tend to be more attractive for dealers, and tend to have more areas where discounts could be applied – EG the interest rate could be lower, the deposit contribution could be higher.

Buying a car with cash: pros and cons

The cash purchase considered here is the electronic bank transfer/cheque/debit card root, not physical currency.

Pros

• You will own the car outright, with no debt
• Avoids interest and other charges (unless the purchase entails a transfer fee)
• Quick and convenient – no approval process or financial agreements to sign
• More choice: while commonplace, not all dealers offer financing options

Cons

• Not everyone will have a car’s full value at hand as cash
• Large amount of money to have in a single depreciating asset
• Finance agreements allow you to spread the cost of a purchase
• Ties up money that could be invested elsewhere
• Buying on finance can improve your credit rating

Buying a car with physical cash: pros and cons

Pros

• Can be convenient (excluding the hassle of getting cash out from the bank)

Cons

• Many dealers won’t accept physical cash, or have a low limit for how much they will
• No electronic paper trail if anything goes wrong with the purchase
• Security risk of carrying large amounts of physical currency
• Could see you face awkward questions if the purchase is flagged

Buying a car with credit card

If you use your credit card to buy a car, for the dealer this is effectively the same as if you had used a debit card or bank transfer (although some dealers don’t like credit cards due to the fees they can entail.)

However, the individual paying for a car with their credit card is essentially taking out a loan to pay for the car, so this does not amount to paying for a car with cash.

Credit cards bring with them credit limits, so you may not be able to buy the whole car on your card, while interest rates can be relatively high. You could consider paying for the car with credit card, then moving the debt over to a 0% interest credit-card offer.

It’s also worth noting that while the Consumer Rights Act applies to cars bought from dealerships regardless of what payment method was used, credit cards offer an extra layer of protection, as the credit-card company may be able to help if there is any kind of dispute or issue with the car.

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Looking for an easy way to change your car? Then carwow is the place to go. You can sell your old car for a great price, and get the best deals on a new one. All through our network of trusted dealers and all from the comfort of your home. Tap the button below to get started today.