How to Buy a Car Without a Loan

The value of your car depreciates daily, so why get a loan with interest that accrues? Here’s how to buy a car without a loan.
Red vintage Porsche

We’re living in what has been dubbed a “debt-rich” society where your every need and desire can be met with the swipe of a card or by qualifying for a loan. Now, debt doesn’t have to be bad, and, in some cases, it can actually help you build a solid credit history—but keeping your debt-to-income ratio low is essential.

If you have student loans and credit cards, or if you’d just rather avoid more debt, consider purchasing a car with cash instead of taking out a loan. Why? First, not having a car payment every month is huge! This enables you to put more money toward other debts or, better yet, to actually save money. Second, car values notoriously depreciate as soon as you drive them off of the lot, so why pay full price for something that doesn’t appreciate in value if you can get something of equal quality for cheaper? Here’s what you’ll need to think about if you plan to purchase a car with cash.

Do the research

The first step is deciding what kind of vehicle you want: the year, make, model, and color. Are you using this car to commute, or do you need something with four-wheel drive that will take you on adventures? Do cosmetic imperfections bother you? Are you willing to sacrifice the look and style of a vehicle as long as it’s mechanically sound?

Once you’ve answered some of these basic questions, you can start researching how much your used vehicle will cost. Consulting online car valuation sites is a great place to start. You should also keep in mind that, in addition to the cost of the car, you’ll also have to pay for new license plates, insurance, tags, and your registration. Not to mention, you should consider putting aside money to pay a certified mechanic who is willing to vouch for the integrity of the vehicle.

How to develop a timeline for saving

OK, you’ve decided on the type of vehicle you want and you have a pretty good idea about how much it will cost. Now it’s time to save. Ask yourself the following questions before drafting a savings plan:

  • When do you need the car and how will you get around until you’ve saved enough to buy it?
  • If you currently have a vehicle, where and how will you sell it?
  • How much is your current vehicle worth?
  • How much will your insurance and registration increase if you are buying a newer model?

Now, begin drafting a plan. For most people on a modest budget, it will probably take anywhere between six and nine months to save for a used car. Selling your old car first and riding your bike or using public transportation can help you jump-start your savings.

Saving the first $2,000 and beyond

The first $2,000 always seems to be the toughest. You’ve got to get into a savings rhythm, and that takes time. While you’re building that first big chunk, consider car sharing, carpooling, and even saving your tax return instead of using it as play money.

Cut back on unnecessary expenses like eating out or that daily Starbucks to save faster. You may even want to consider taking a second, side job if you’re really in a time crunch.

The inherent risks

There are some risks involved when you buy used versus new. The obvious risk is that the seller will not fully disclose mechanical issues and you’ll be stuck with a “lemon.” The best way to avoid this is to do your research and make sure that your seller agrees to allow you to have the car thoroughly inspected by a mechanic before the sale is completed. Also, ask for paperwork on the used vehicle, including maintenance reports, any body work or improvements that have been done, and, if the car was previously involved in an accident, the insurance claim reports along with any subsequent work that followed.

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor our partner banks, The Bancorp Bank and BBVA Compass, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.