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Buying A Car From A Dealer: Cash Payment Or Financing?

Ramona is happy with her financed new car named “Willy”.

A new car is the dream of many car fans. Model, equipment features or financing: car buyers have to make many decisions when buying a new car. And every choice costs money. The good news: with the right strategy, you can save a lot of money when buying a new car. Ramona has made this experience. She secured herself a substantial discount when buying her new car.

The good Fritz is slowly getting old and expensive. First the electronics were broken, now the oil consumption is too high and the exhaust also makes strange noises.

Ramona is ready for a new one before the really expensive repairs start. She has already put a lot of money into her 14 year old small car named Fritz. She is looking for a reliable car and does not want to have to deal with expensive repairs again. So this time it should be a new car where Ramona also benefits from the legal liability for defects and the manufacturer’s warranty.

 Which services are guaranteed when buying a new car?

Manufacturer warranty

The manufacturer or new car warranty is voluntary. It stands for the promise that the new car will last for a while. It is valid for between two and seven years from registration for all parts of the car. Excluded: Wear parts and consumables. The manufacturer determines the warranty services. He can attach conditions to them (for example, compliance with all inspections). If these conditions are not met, the guarantee becomes void. If something breaks within the warranty period, buyers have the right to have it repaired free of charge. The warranty does not provide for price reduction or reversal.

Liability for defects

The warranty, however, is regulated by law. In this case, the seller is liable for defects that already existed when the vehicle was handed over, but which are not known to the buyer. The warranty period is basically two years and begins with the delivery of the vehicle to the buyer.

Connection guarantee

The follow-up warranty starts after the new car warranty and must be concluded additionally. The car buyer must pay extra for it. It can be concluded when buying a new car. Some manufacturers also offer it until shortly before the new car warranty expires. The benefits of the follow-up guarantees are often identical to those of the new car guarantee. So-called module warranties provide less. They only apply to certain car parts, such as the drive train, electronics or chassis.

Dealer credit or cash payment? Where can you get the best price?

Ramona researches on comparison platforms, reads test reports, compares and calculates back and forth. Finally, she ends up with a gasoline engine with air conditioning made in UK  for a list price of 12,225 GBP.

The dealer offers her a so-called three-way financing via the manufacturer’s bank with a term of 48 months:

  • Down payment: 3,056.25 GBP
  • Annual mileage: 15,000 km
  • Annual percentage rate of charge: 2.99%
  • 48 monthly instalments of 95,39 GBP
  • Final instalment: 5,461.82 GBP
  • Total amount: 13,096.79 GBP

The advantage: the monthly rates seem temptingly low. The disadvantages for Ramona, however, are that 25 percent must be paid on account and the final instalment is also high. The dealer points out to her that she can continue to finance the final instalment or simply return the car.

What is a three-way financing?

The buyer finances his new vehicle in three steps:

  1. he first makes a down payment for his new car.
  2. he pays his monthly instalments over a defined period.
  3. the final payment is due after the term.

Advantage: The monthly instalments are low.

Disadvantage: The total burden of the final payment is higher than with a classic car loan. The high final payment can only be avoided by taking out follow-up financing in the form of a new loan.

Ramona avoids the high down payment and the final installment of the three-way loan and makes a counter proposal to the dealer:

What if she were to pay cash? Ramona promises herself a big discount, because the seller also benefits from the cash payment: it relieves his bookkeeping and he can invest the money directly himself.

In Ramona’s case, the whole 20 percent discount on the list price is worth it to him.

Well, that sounds good, Ramona thinks, and looks around for a suitable personal loan. Because her savings have unfortunately been almost completely used up by dear Fritz. And if she does it cleverly, she still makes the better deal.

 More discount with a car credit from Credit company

On the Internet she comes across the car loan from Credit company. She enters the amount of 12,000 GBP into the online credit calculator and selects a minimum term of 48 months. As a monthly rate, the online credit calculator shows her an estimated value of 288 GBP. The loan would therefore cost her 1,808 GBP – considerably less than she saves with the discount.

It’s worth it!

Ramona can complete her installment credit with Credit company directly online. Two working days later she has the money in her account. Ramona could also have sought advice in advance via online chat, on the phone or in one of over 10,000 branches of the Credit company partner banks.

Now she can act as a cash payer at the merchant and secure the 20 percent discount. She does not need to make a down payment and receives the vehicle registration document directly with the purchase.

That just leaves one question: what is Fritz’s successor to be called?

Ramona does not think long: Willy.

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