I had never paid cash for a car before in my life.  That was the case until this past week.  Like most regular people, I’ve always had to borrow the money and pay it off one stinking payment at a time.

This means that I always ended up paying way too much for my cars.  For example, if I borrowed $15,000 at 10% interest for 5 years, then I would end up paying over $4,000 in interest.  This jacks up the price of a car by over 25 percent!

This is why about two years ago my wife and I started saving to pay cash for our next car.  Instead of making the monthly payment to a bank, we made it to ourselves.  In addition, when we received some kind of windfall like a bonus or tax refund, we put that in the car fund as well.

This strategy paid off big time this past week.  Let me share some of the details of what happened and how we reacted.

It All Began When Our Old Car Wouldn’t Start

My wife is a stay-at-home-mom and last week she called me at work to say our 2002 Pontiac Grand-Am wouldn’t start.  She was trying to take our oldest daughter to school and our youngest to mother’s day out.  The engine cranked when she turned the key, but it just wouldn’t start.

We had to get the thing towed to the repair shop which is never good.  Later that afternoon, I got a call from the mechanic saying they had found the problem. 

The car has a chip built into the key as a security measure.  The ignition switch in the car has to read the chip on the key before it will start.  This part of the ignition switch wasn’t functioning correctly which meant the whole ignition cylinder needed to be replaced.  The repair bill ended up costing us over $800!

But wait that’s not all!  The mechanic also found some other things wrong with the car.  The front brakes only had about 10% of life left and the rack and pinion steering was leaking fluid.  The Pontiac needed about another $1,000 worth of work!

Should We Keep Our Old Car or Buy a New One?

The news from the mechanic wasn’t good.  In total, our eight year old car needed $1,800 of work.  Fortunately, the brakes and steering fluid leak weren’t issues we had to address immediately.  We spent the $800 to repair the ignition to get the car running again and decided to wait on the rest.

Once we had the car back in our possession, we started wondering if it was worth keeping.  As I said, we had been saving for a couple of years to buy something newer anyway, but we weren’t planning to do anything quite yet.  Of course, the news of the other needed repairs got us thinking.

Bottom line, we decided to trade our car for the following reasons:

• We already had enough saved to pay cash for a newer car.  This was a biggie for us.  We would not have traded if we couldn’t pay cash.
• We were planning to buy something else anyway and we couldn’t see investing another $1,000 minimum in the old car over the next year because we knew we wouldn’t get our money back.
• The Pontiac had over 110,000 miles on it which isn’t the end of the world, but it seems like maintenance costs go up when a car gets over 100k on it.
• We were afraid that something else might happen to the car that would cost us even more money.  We didn’t want these repairs to drain what we had saved to buy something newer.
• After a little investigation, we found that there were some pretty good deals out there on late-model used cars.

It still wasn’t an easy decision, but we finally came to the conclusion that we wanted to ditch the issues in the old car and move up.

How We Conducted the Search for Our New Car

Once we decided that buying a newer car was what we wanted to do, the question became, “What car do we buy and where should we buy it from?”

Fortunately, we already had some things in mind that guided our search.  Most importantly, we knew we didn’t want to buy a brand new car mostly because of the amount of depreciation that occurs in the first two years of ownership.  We were in search of a reliable, low-mileage, late-model used car.

We started our search at CarMax.  This was a great place to begin because there was absolutely no pressure at all on us from our salesperson.  Their approach is very straightforward and laid back.  It was also nice because they have their no-haggle price displayed on every car.  This allowed us to quickly zero in on the model and approximate year of car that  was in our price range.

Since the environment was so easy-going we drove several models of 4-door sedans and quickly narrowed our search down to either a Nissan Altima, Ford Fusion or Honda Accord.  We were also able to determine that one of these cars that was 2 to 3 years old with less than 40,000 miles was in our price range so that’s where we focused our search.

From there, it was really just about finding the car with the perfect combination of desired features and best price.  With just a little more looking around and a couple of test drives, we found ourselves leaning heavily toward a 2007 or 2008 Nissan Altima.

Unfortunately, CarMax didn’t really have an Altima that knocked our socks off.  So, I went online and searched a few dealers in our area to locate some more possibilities.  On Sunday, when the dealerships are closed, my wife and I drove around to look at a few of the vehicles I found.

The funny thing is we found the one we ended up buying just by chance.  We saw it on a lot that we drove past on our way somewhere else.  It was a 2008 Altima that looked really nice with only 33k miles on it and it had a “Silent Sunday Sale” sticker on it showing a really attractive price.

Our Experience Paying Cash for a Car

My wife went to the dealer by herself on Monday and test drove the Altima.  It was truly as nice as it appeared, but we still didn’t rush into anything.  We chose to think about it overnight.

On Tuesday, my wife went back to the dealer and asked if she could drive the car for the day.  They agreed.  My wife then took the car to our mechanic and had them check it out thoroughly.  It cost less than $100 and could have saved us thousands so we felt this was well worth it.  The mechanic couldn’t find anything wrong with the car and gave us the green light to move forward with the purchase.

While she was driving their car, they evaluated our car to determine its trade-in value.  Before we went back to the dealership that evening, they had already told us they would give us $2,000 for our car which was almost $500 above the trade-in value on Kelly Blue Book.

Their “Silent Sunday Sale” price on the Altima was already over $2500 less than the retail Blue Book value so we felt like we already had a great deal in the making.  However, we were a little concerned that the dealership would frown on the fact that we were paying cash instead of financing.  Apparently, dealerships make quite a bit of money on the financing deals.

To our pleasant surprise, they were very cordial about the whole thing.  Altogether, our car buying experience was very favorable.  We bought a really nice car at a great price and it wasn’t even a huge hassle!

Summing Up the First Time I Paid Cash for a Car

Paying cash for a new(er) car was a very pleasant experience.  It is so nice to have a new vehicle to enjoy without having to worry about those pesky monthly payments.  It was even nice to see the look on my insurance agent’s face when she asked me, “Who is the lien holder?” and I said no one.  That was priceless!  I’ll never go into debt to buy another car in my life.

Photo by codepo8