There are still recommendations in the network for consumers to pay their next used car in cash – because of the cash discount. Time to clean up with this myth once.
- Car dealers receive a commission on mediated car financing, which is why the interest in this method of payment is great.
- With cash payment any commission for the dealer does not apply.
- In case of financing, the terms should be compared to save.
Cash payer do not get a higher discount
Traders grant discounts on used cars once regardless of how the car is paid. Cash payers should say goodbye to being granted generous discounts. How so? We explain this with an example:
Used cars: cash payment versus car loan
You want to buy a used car, which is offered at the dealer for 9,999 euros. The purchase price of the dealer was 7,000 euros, so his margin is 2,999 euros. With every euro he gives you, his margin shrinks, and he has the extra time to bring the cash to the bank and deposit it there.
If, on the other hand, the car is financed through a car loan, the dealer receives a commission from the financing bank, which – and now it will be interesting – is based on the amount of the loan and – depending on the bank – the interest rate “sold” to the customer.
For the last point, we have to make a difference: after entering the personal data of the potential buyer, the bank checks the creditworthiness and – after successful examination – a minimum interest rate, let’s say in our example 4.99 percent annual percentage rate. For every percentage point that the seller pays on this rate to his customer, there is more commission (talk to the trusted used car dealer in private).
Let’s assume 3.0 percent commission that the dealer gets for the brokerage car loan. For each percentage point more, the commission increases by 0.5 percentage points. If the trader now manages to announce a loan commitment for 7.99 percent pa with a firm, thoughtful face, he secretly looks forward to receiving 4.5 percent commission. At 9,999 EUR loan amount, after all, around 500 euros.
The trader is interested in his overall profit
His total margin from the sale would then amount to around 3,000 euros profit margin plus the 500 euro commission. For cash payments, however, the maximum profit margin would be only 3,000 euros. Negotiate as a customer a discount on say 9,000 euros, so the profit margin of the dealer melted to 2,000 euros together. For the financing customer, on the other hand, the discount awareness is not so pronounced, because in the end he is glad to get the car somehow financed.
As you can see, used car dealers have no appetite for cash payers in terms of their profit margin – and even less desire for cash payer, who also demand a discount for it.
However, as the dealer’s financing offer often depends on how much premium on the best possible interest he can sell to you, we recommend that you compare your credit terms with cheaper car loans, which you can do right here:
Calculate car loans now and compare
Net loan amount in EUR: Running time: 12 months 24 Months 36 months 48 months 60 months 72 months 84 months 96 months 108 months 120 months
How much a comparison can pay off, shows the comparison of an exemplary dealer financing and a cheap car loan from our comparison: