Car dealer tried to penalize for paying in cash
Car dealer tried to penalize for paying in cash
Bought a car last week; wanted to alert Bogleheads here of something I've never seen before. The sheet of figures with the "Out the Door" price, as the salesman called it, was not really OTD. Under the final figure in fine print it said "amount to be financed," and there was a $500 charge if paying cash or using an outside finance company. For this I would have walked; fortunately the manager waived the fee. One more thing to have to look out for!
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Re: Car dealer tried to penalize for paying in cash
As you correctly point out, that would not be an out the door price and you would have been right to walk out, as they’re changing the deal.
Re: Car dealer tried to penalize for paying in cash
Car loans I've seen allow payoff at any time w/o penalty. So I'd taken it & turned around and paid it off immediately.
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Re: Car dealer tried to penalize for paying in cash
Kinda stupid, because presumably you already were given a number for the OTD price.
One way to deal with this is to show up with a cashier's check for the agreed amount. That's what I did.
One way to deal with this is to show up with a cashier's check for the agreed amount. That's what I did.
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Re: Car dealer tried to penalize for paying in cash
Silly, but I have found that paying cash doesn't ever net the best deal. They want you to take a loan.
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Re: Car dealer tried to penalize for paying in cash
The dealer tried the same thing when I bought my truck. This was in 2019 before the covid vehicle shortages so I had the leverage to get him to back down. They could probably have held firm for the past couple years since it's been a seller's market.
Re: Car dealer tried to penalize for paying in cash
This is what I do. Also saves from having to track down a cashier's check to present at closing. Sure, it may cost a few bucks in interest, but saves me the hassle of going to a bank.
Re: Car dealer tried to penalize for paying in cash
The $500 "cash price" " outside financing" upcharge, reflects the $500 lost from the kickback the dealer would have received from their finance arm.
Re: Car dealer tried to penalize for paying in cash
Like most statements with "never" or "always," that's not quite correct. When there's subsidized financing (lower than market rate) from the manufacturer's financing arm, often - but not always - there's a cash incentive that's can be taken in lieu of the subsidized financing - e.g., 1.9% financing OR $2000 cash back. Sometimes there's a cash incentive FOR taking financing - e.g., $1000 cash back when you finance at least $5000. It totally depends on the particular offer, which can even vary from state to state.runner3081 wrote: ↑Thu Aug 11, 2022 6:47 pm Silly, but I have found that paying cash doesn't ever net the best deal. They want you to take a loan.
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Re: Car dealer tried to penalize for paying in cash
Like many Bogleheads, I've most often paid cash. I've watched a number of videos from car dealers and former car dealer business managers and all say that as soon as you tell them that you're paying cash, they add money to what they'll accept. $500 sounds about right. The loan gives them the kick back money from the financial provider. Typically, however, there's a time that the loan has to be running before the dealer gets the money and if you pay it off right away, the dealer will have the money clawed back. I've had dealers in the past tell me that I can save $100 if I finance through them and that I need to pay 3 payments and then can pay it off. After your deal is done, ask them how many payments need to be made before they get the money to keep. The business manager will tell you as they absolutely want you to make enough payments to get them their money. This kick back often is more than the profit they made selling the car.
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Re: Car dealer tried to penalize for paying in cash
A long time ago, back when I bought new cars, I had what seemed a strange incident.
I went through the process of shopping for and finding a car I wanted, negotiated a price and started to purchase it. We worked through all the numbers and had a price. At that point the sales manager, or whoever, appeared and presented me with a loan application. I told them I was paying cash, they had never asked before. They seemed taken aback, fumbled around and I asked them if there was a problem. They mumbled about having assumed I was borrowing to pay for the car.
I told them I could have the cashier's check in an hour. They grudgingly sold it for the agreed price.
In retrospect, that must have been what was going on. Since then people have asked whether I was borrowing, usually phrased as "how are you going to pay for it." I tell them it depends on their financing. I have never borrowed to buy and I have not seen the loan terms beat a cash price. But I buy cars rarely and only when an old one needs to be replaced. Perhaps there have been times when financing was a better deal on a used car but I was not buying at one of those times.
I went through the process of shopping for and finding a car I wanted, negotiated a price and started to purchase it. We worked through all the numbers and had a price. At that point the sales manager, or whoever, appeared and presented me with a loan application. I told them I was paying cash, they had never asked before. They seemed taken aback, fumbled around and I asked them if there was a problem. They mumbled about having assumed I was borrowing to pay for the car.
I told them I could have the cashier's check in an hour. They grudgingly sold it for the agreed price.
In retrospect, that must have been what was going on. Since then people have asked whether I was borrowing, usually phrased as "how are you going to pay for it." I tell them it depends on their financing. I have never borrowed to buy and I have not seen the loan terms beat a cash price. But I buy cars rarely and only when an old one needs to be replaced. Perhaps there have been times when financing was a better deal on a used car but I was not buying at one of those times.
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Re: Car dealer tried to penalize for paying in cash
That's about how much additional discount they add to take the financing. They took the $500 off - did they offer any more off to finance?
Re: Car dealer tried to penalize for paying in cash
The thing to do is don’t tell them your paying cash.runner3081 wrote: ↑Thu Aug 11, 2022 6:47 pm Silly, but I have found that paying cash doesn't ever net the best deal. They want you to take a loan.
In other words when the sales team asks if you will finance you tell them that you don’t discuss financial details with sales and you will look at your options with the finance person after you have ascertained the price of the car.
If the salesman insists he needs to know or wants to run a credit report, walk away.
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Re: Car dealer tried to penalize for paying in cash
It's very common for dealers to give you a better price if you let them arrange financing instead of paying cash, since they get a referral fee from the bank. It's conventional wisdom that if you want the lowest price, you should finance through the dealership. You're correct they were dishonest to add a fee after they'd already negotiated the OTD price. I'd have walked.
Re: Car dealer tried to penalize for paying in cash
CarMax doesn't charge you more if you pay with cash.
Re: Car dealer tried to penalize for paying in cash
Several responses in the thread mention "cashier's checks" but The last 3 new cars I've bought, going back about 12 years, have been paid for with a personal check from my bank.
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Re: Car dealer tried to penalize for paying in cash
No. They evidently assumed I was financing until I mentioned cash at the end of the deal.SmileyFace wrote: ↑Thu Aug 11, 2022 7:20 pmThey took the $500 off - did they offer any more off to finance?
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Re: Car dealer tried to penalize for paying in cash
Don’t discuss financing until you have a deal.
Once you’ve agreed on the price, charge as much as they allow on cash back card and pay rest with personal check.
Once you’ve agreed on the price, charge as much as they allow on cash back card and pay rest with personal check.
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Re: Car dealer tried to penalize for paying in cash
I just tell them, "I will pay whatever way gives me the best deal." Though, not sure I will buy from a dealer again. Doesn't make sense in our state due to taxes.MGBMartin wrote: ↑Thu Aug 11, 2022 7:44 pmThe thing to do is don’t tell them your paying cash.runner3081 wrote: ↑Thu Aug 11, 2022 6:47 pm Silly, but I have found that paying cash doesn't ever net the best deal. They want you to take a loan.
In other words when the sales team asks if you will finance you tell them that you don’t discuss financial details with sales and you will look at your options with the finance person after you have ascertained the price of the car.
If the salesman insists he needs to know or wants to run a credit report, walk away.
Re: Car dealer tried to penalize for paying in cash
Car dealers hate when you don't take a loan to pay for a car. These people are sleazeballs. Use Carvana.
Last edited by mikejuss on Thu Aug 11, 2022 9:55 pm, edited 1 time in total.
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Re: Car dealer tried to penalize for paying in cash
They do this routinely.windaar wrote: ↑Thu Aug 11, 2022 6:12 pm Bought a car last week; wanted to alert Bogleheads here of something I've never seen before. The sheet of figures with the "Out the Door" price, as the salesman called it, was not really OTD. Under the final figure in fine print it said "amount to be financed," and there was a $500 charge if paying cash or using an outside finance company. For this I would have walked; fortunately the manager waived the fee. One more thing to have to look out for!
Or at least I experienced it the last 2 times I bought a new car....you are lucky to get away with just a $500 fee, and both times they didn't reveal this until I was in the final stages of signing paperwork.
But you can get around this, as long as they don't charge for prematurely paying off the loan, and in my case, both times, there was no penalty for paying it off prematurely.
So take the loan with a smile and pay it off in full within days of buying the car. I did that both times....I wound up paying less than $10 in interest....maybe $20 at best. No problem.
Don't walk out or lose sleep over it...in the end you win.
Last edited by protagonist on Thu Aug 11, 2022 10:49 pm, edited 1 time in total.
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Re: Car dealer tried to penalize for paying in cash
Something similar happened to me. The car was prepped, and I went to the dealer with casher's check in hand to pick it up. I sat down with the salesman, and he walked out saying he had someone he wanted me to talk to. About 30 seconds later he returned with another guy who pitched me on the advantages of financing the deal. I held my ground and paid the cash price.afan wrote: ↑Thu Aug 11, 2022 7:16 pm A long time ago, back when I bought new cars, I had what seemed a strange incident.
I went through the process of shopping for and finding a car I wanted, negotiated a price and started to purchase it. We worked through all the numbers and had a price. At that point the sales manager, or whoever, appeared and presented me with a loan application. I told them I was paying cash...
(I wonder if the fact that I'm a GM retiree and eligible for the GM employee price might have dissuaded him from trying any other fast ones.)
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Re: Car dealer tried to penalize for paying in cash
Anyone who insists on paying cash for a new car is overpaying compared to someone who accepts the financing. This has been the case for a while…..in 2012 I bought a new car and was told the price would be $500 higher if I paid cash compared to a five year 0.0% loan.
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Re: Car dealer tried to penalize for paying in cash
So you humored the dealer by taking the financing and then paid off the debt immediately?chicagoan23 wrote: ↑Thu Aug 11, 2022 10:25 pm Anyone who insists on paying cash for a new car is overpaying compared to someone who accepts the financing. This has been the case for a while…..in 2012 I bought a new car and was told the price would be $500 higher if I paid cash compared to a five year 0.0% loan.
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Re: Car dealer tried to penalize for paying in cash
Not only you win, you have your "revenge." They will probably have to pay back the the kickback.protagonist wrote: ↑Thu Aug 11, 2022 9:48 pmThey do this routinely.windaar wrote: ↑Thu Aug 11, 2022 6:12 pm Bought a car last week; wanted to alert Bogleheads here of something I've never seen before. The sheet of figures with the "Out the Door" price, as the salesman called it, was not really OTD. Under the final figure in fine print it said "amount to be financed," and there was a $500 charge if paying cash or using an outside finance company. For this I would have walked; fortunately the manager waived the fee. One more thing to have to look out for!
Or at least I experienced it the last 2 times I bought a new car....you are lucky to get away with just a $500 fee, and both times they didn't reveal this until I was in the final stages of signing paperwork.
But you can get around this, as long as they don't charge for prematurely paying off the loan, and in my case, both times, there was no penalty for paying it off prematurely.
So take the loan and pay it off in full within days of buying the car. I did that both times....I wound up paying less than $10 in interest....maybe $20 at best. No problem.
Don't walk out or lose sleep over it...in the end you win.
Last edited by student on Thu Aug 11, 2022 10:43 pm, edited 1 time in total.
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Re: Car dealer tried to penalize for paying in cash
For that rate I just set up auto payments and paid it off over the five year period. I guess it made sense under some finance company algorithms.mikejuss wrote: ↑Thu Aug 11, 2022 10:29 pmSo you humored the dealer by taking the financing and then paid off the debt immediately?chicagoan23 wrote: ↑Thu Aug 11, 2022 10:25 pm Anyone who insists on paying cash for a new car is overpaying compared to someone who accepts the financing. This has been the case for a while…..in 2012 I bought a new car and was told the price would be $500 higher if I paid cash compared to a five year 0.0% loan.
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Re: Car dealer tried to penalize for paying in cash
How does a dealer benefit from handing out no-interest loans?chicagoan23 wrote: ↑Thu Aug 11, 2022 10:43 pmFor that rate I just set up auto payments and paid it off over the five year period. I guess it made sense under some finance company algorithms.mikejuss wrote: ↑Thu Aug 11, 2022 10:29 pmSo you humored the dealer by taking the financing and then paid off the debt immediately?chicagoan23 wrote: ↑Thu Aug 11, 2022 10:25 pm Anyone who insists on paying cash for a new car is overpaying compared to someone who accepts the financing. This has been the case for a while…..in 2012 I bought a new car and was told the price would be $500 higher if I paid cash compared to a five year 0.0% loan.
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Re: Car dealer tried to penalize for paying in cash
I ran in to this issue when buying my daughters car, website actually said “cash price”. The salesman told me that was the price if financed. We got it worked out and I got a great deal on my daughters first car.
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Re: Car dealer tried to penalize for paying in cash
Not worth the hassle factor of getting a loan, then paying it off quickly, I'd give $500 to not have to go through that hassle, I like a smooth title transfer.
But yeah, I'd have to go with the car dealer, if there's limited supply, I'd rather make the commission from financing over not, it's a free market after all. I have always paid cash every time for new cars and decline everything they try to sell you, dealers hate that.
But yeah, I'd have to go with the car dealer, if there's limited supply, I'd rather make the commission from financing over not, it's a free market after all. I have always paid cash every time for new cars and decline everything they try to sell you, dealers hate that.
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Re: Car dealer tried to penalize for paying in cash
This is what we've done for our last two cars purchases. In my experience, they don't charge a fee, they find you an additional rebate for financing - just a different way of framing it. For our previous vehicle they "found us" another $1500 rebate (on a $14k car) for financing and in May financing got us another $500. In both cases we paid the vehicle off before the first payment was due. Probably pissed off the financing manager, but oh well. I go through a lot more hassle for less money.
Re: Car dealer tried to penalize for paying in cash
Be careful with that and read the agreement completely - there are a number of car/truck loans that have a prepayment penalty if paid off within XX months, The most common number of months I have seen is 9 but have heard of other terms as well.
Re: Car dealer tried to penalize for paying in cash
A very savvy friend bought a car during the height of the COVID supply chain disruptions, before interest rates went up. They compared cash, dealer financing and a bank loan, running NPV calculations for each option. They ended up with a bank loan at a low fixed interest rate. Considering their hourly rate of compensation, I suspect that just going with one option, or simply paying cash may have been the best financial move, but the bank loan had the least negative NPV.
Another thing about loans is that you have to fill out an application, unfreeze your credit report(s), refreeze them after the credit check and at some point revise the title. Depending on your options for working another hour or two, you might come out ahead just paying cash even if the the loan looks better, ignoring the cost of your time.
Another thing about loans is that you have to fill out an application, unfreeze your credit report(s), refreeze them after the credit check and at some point revise the title. Depending on your options for working another hour or two, you might come out ahead just paying cash even if the the loan looks better, ignoring the cost of your time.
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Re: Car dealer tried to penalize for paying in cash
Agree with others that financing is a big source of profit in the deal for dealers. I took the 1.9% deal early this year on my new Subaru and am paying it now with my 8% depreciated dollars.
You can see the importance of financing in the financial statements have the big used car retailers. For example, checkout page 25 of the Carmax 10-k where you can see that the profit from financing is 3/4 of the companies total profit for the year.
https://d18rn0p25nwr6d.cloudfront.net/C ... cc0340.pdf
You can see the importance of financing in the financial statements have the big used car retailers. For example, checkout page 25 of the Carmax 10-k where you can see that the profit from financing is 3/4 of the companies total profit for the year.
https://d18rn0p25nwr6d.cloudfront.net/C ... cc0340.pdf
Re: Car dealer tried to penalize for paying in cash
It's not the dealer/dealership that is underwriting the loan. The bank or financing arm is, and it is that entity that offers the additional kickbacks to the dealership for "selling" the financing.mikejuss wrote: ↑Thu Aug 11, 2022 10:50 pmHow does a dealer benefit from handing out no-interest loans?chicagoan23 wrote: ↑Thu Aug 11, 2022 10:43 pmFor that rate I just set up auto payments and paid it off over the five year period. I guess it made sense under some finance company algorithms.mikejuss wrote: ↑Thu Aug 11, 2022 10:29 pmSo you humored the dealer by taking the financing and then paid off the debt immediately?chicagoan23 wrote: ↑Thu Aug 11, 2022 10:25 pm Anyone who insists on paying cash for a new car is overpaying compared to someone who accepts the financing. This has been the case for a while…..in 2012 I bought a new car and was told the price would be $500 higher if I paid cash compared to a five year 0.0% loan.
Re: Car dealer tried to penalize for paying in cash
Many years ago, my standard approach to car buying was to spec the car I wanted in advance and come in to special order and pay cash. My logic was that I was creating the ideal transaction for them, since all they had to do was place a factory order and cash the check when the car arrived. Of course, they still had to prep the car, but the manufacturers pays them for that. And, they could get some float on my money on their payment terms with the factory.
It wasn't until later that I learned how much of the dealer profit opportunity is tied to financing. So, under advice from folks in the industry, I now refuse to discuss payment until we've settled on price. Only then do we get into cash vs financing. In fact, on my wife's Jag, they had a promo at the time where they would make the first payment if you financed through them. One month later, they made the first payment while I paid off the balance.
It wasn't until later that I learned how much of the dealer profit opportunity is tied to financing. So, under advice from folks in the industry, I now refuse to discuss payment until we've settled on price. Only then do we get into cash vs financing. In fact, on my wife's Jag, they had a promo at the time where they would make the first payment if you financed through them. One month later, they made the first payment while I paid off the balance.
Re: Car dealer tried to penalize for paying in cash
One thing to consider: to qualify for a loan you generally need to be working and earning a steady salary - what about for retirees like me?
Re: Car dealer tried to penalize for paying in cash
I can't readily think of any other business that has gotten away with pulling the antics associated with new and used car sales. Well, maybe one, water softener sales.
It is good to hear you stood your ground and got the price they quoted you.
It is good to hear you stood your ground and got the price they quoted you.
Re: Car dealer tried to penalize for paying in cash
Agree, but just want to add that I believe some states have essentially disallowed prepayment penalties for consumer loans. California is one of them.
Re: Car dealer tried to penalize for paying in cash
This last one was in NY ...vfinx wrote: ↑Fri Aug 12, 2022 5:10 pmAgree, but just want to add that I believe some states have essentially disallowed prepayment penalties for consumer loans. California is one of them.
Re: Car dealer tried to penalize for paying in cash
This last one was in NY ...vfinx wrote: ↑Fri Aug 12, 2022 5:10 pmAgree, but just want to add that I believe some states have essentially disallowed prepayment penalties for consumer loans. California is one of them.
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Re: Car dealer tried to penalize for paying in cash
Re: Car dealer tried to penalize for paying in cash
Cars dealers have a reputation for all sorts of tricks. You are lucky they called it non-finance charge as opposed to simple "overcharge", "floor mats" or "TruCoat". You have to read carefully, regardless of how you pay.
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Re: Car dealer tried to penalize for paying in cash
Not only did I buy our last car with a personal check, it was one that was not (and I told them so) even valid at the time. I put in a sale order for enough securities in my taxable account to cover the purchase while we were at the salesman's desk, and told them it would be a few days to settle, then a few more days to ACH to my bank. They were fine with this, and put the check in an envelope so it would not be deposited right away. We took the car home on Saturday, and I called them on Thursday to let them know they could deposit the check.
Lol. Carvana is currently prohibited--for the second time--from selling cars in my state because of their history of not delivering titles to cash buyers for 6-12 months after the sale.
Re: Car dealer tried to penalize for paying in cash
That’s called check kitinglazydavid wrote: ↑Sat Aug 13, 2022 6:31 amNot only did I buy our last car with a personal check, it was one that was not (and I told them so) even valid at the time. I put in a sale order for enough securities in my taxable account to cover the purchase while we were at the salesman's desk, and told them it would be a few days to settle, then a few more days to ACH to my bank. They were fine with this, and put the check in an envelope so it would not be deposited right away. We took the car home on Saturday, and I called them on Thursday to let them know they could deposit the check.
Lol. Carvana is currently prohibited--for the second time--from selling cars in my state because of their history of not delivering titles to cash buyers for 6-12 months after the sale.
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Re: Car dealer tried to penalize for paying in cash
Bought a new Sentra for $100 below MSRP early this year=
Hadn't taken a car loan in nearly 40yrs, but they offered zero percent so figured why not.
With rates rising steadily, that deal looks better and better.
Hadn't taken a car loan in nearly 40yrs, but they offered zero percent so figured why not.
With rates rising steadily, that deal looks better and better.
Re: Car dealer tried to penalize for paying in cash
Not really, as that term implies (and in many states, requires) an intent to defraud. Not only was I 100% forthright about the situation, I was perfectly happy to come back and pick up the car on Friday with a good check. The dealer didn't want that, for reasons that should be obvious.
In fact, it's not materially different from when I bought my third car. I was using credit union financing, so I signed a bill of sale noting that I owed the dealer $XX,XXX and took the car home. Picked up the check and delivered it to the dealer later that week.
The point of all this is that it's not at all unusual for a dealer to complete a sale without ironclad proof that they have been paid at the time the purchaser takes possession of the vehicle.
Re: Car dealer tried to penalize for paying in cash
Yup, same here, though probably a couple of days quicker. I believe it was even the dealer's suggestion.lazydavid wrote: ↑Sat Aug 13, 2022 6:31 am
Not only did I buy our last car with a personal check, it was one that was not (and I told them so) even valid at the time. I put in a sale order for enough securities in my taxable account to cover the purchase while we were at the salesman's desk, and told them it would be a few days to settle, then a few more days to ACH to my bank. They were fine with this, and put the check in an envelope so it would not be deposited right away. We took the car home on Saturday, and I called them on Thursday to let them know they could deposit the check.
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Re: Car dealer tried to penalize for paying in cash
I have done similar payments for car purchases paying by personal check which isn't going to be good for a few days while I execute money transfers. This isn't standard practice however, happens when the dealer has made a combination judgement call and discreet financial/background check to confirm you have the assets/cash to fund the purchase. I do think there is an issue getting a car loan when you are retired and have limited income to show despite having plenty of assets.lazydavid wrote: ↑Sat Aug 13, 2022 8:51 amNot really, as that term implies (and in many states, requires) an intent to defraud. Not only was I 100% forthright about the situation, I was perfectly happy to come back and pick up the car on Friday with a good check. The dealer didn't want that, for reasons that should be obvious.
In fact, it's not materially different from when I bought my third car. I was using credit union financing, so I signed a bill of sale noting that I owed the dealer $XX,XXX and took the car home. Picked up the check and delivered it to the dealer later that week.
The point of all this is that it's not at all unusual for a dealer to complete a sale without ironclad proof that they have been paid at the time the purchaser takes possession of the vehicle.
Re: Car dealer tried to penalize for paying in cash
There are three ways to make money for a car dealership on the purchase of a car.
1. The car's price. Also, most dealerships will agree to one price and then add many (often unexpected) fees later.
2. The trade in.
3. The financing.
Often dealerships will feel out a sucker and see if he/she is really interested in doing well on #1, #2, or #3. So, for example, a dealership might give a great trade in value and then make it up on the car price or the financing. Or they might give a really good deal on the car's price, but make it up in added fees and a poor trade in value. Etc.
Basically, they are going to get you, but also try to make you feel good about it. They way they make you feel good is that you can go to your friends are brag about doing well in one of #1, or #2, or #3.
Often, the dealership makes more on the financing than on #1 or #2. If you take away the financing, you take away their main source of income.
1. The car's price. Also, most dealerships will agree to one price and then add many (often unexpected) fees later.
2. The trade in.
3. The financing.
Often dealerships will feel out a sucker and see if he/she is really interested in doing well on #1, #2, or #3. So, for example, a dealership might give a great trade in value and then make it up on the car price or the financing. Or they might give a really good deal on the car's price, but make it up in added fees and a poor trade in value. Etc.
Basically, they are going to get you, but also try to make you feel good about it. They way they make you feel good is that you can go to your friends are brag about doing well in one of #1, or #2, or #3.
Often, the dealership makes more on the financing than on #1 or #2. If you take away the financing, you take away their main source of income.