US retirees shouldn’t always pay cash for their next car. Here’s why and what to do instead

Buying a car with cash is often considered a smart financial move. After all, skipping a car loan and avoiding expensive monthly payments is a textbook example of disciplined money management.

Unfortunately, the car market has evolved to the point where this strategy can actually backfire, costing you thousands of dollars on your next purchase. The reason is simple: Car dealers are generally less willing to negotiate when you’re buying without financing.

That’s why understanding how dealers make money can help you negotiate better and save money when buying your next car.

Before you head to your nearest car dealership, it’s important to know that selling cars is a high-volume, low-margin business.

While the average price of a new car in 2025 will be about $50,000, according to Kelley Blue Book, the average retailer profit per new car will be about $2,202 as of August 2025, according to J.D. Power. (1,2)

Kelley Blue Book says a lot of that comes from add-on products like financing and warranties. (3) The dealer can earn a financing commission of about 1% of the loan amount, which means that a financing of US$40,000 can bring about US$400 in additional profit to the dealer.

Since more than half of all auto loans are made by captive lenders (the financing arms of automakers), dealers may also receive bonuses or incentives for customers providing long-term loans. (4)

That’s why financing a car makes the dealer more willing to negotiate a down payment.

Cash buyers effectively eliminate this back-end income stream. Therefore, dealers may be less willing to offer significant discounts on the vehicle’s sticker price when they know you’re paying cash.

This dynamic could cost you thousands of dollars more on your next purchase. This poses a special challenge if you’re retired, as you may be faced with the choice of paying more upfront or taking out a car loan later in life.

Fortunately, there are ways to strategically navigate this system without getting bogged down in long-term debt.

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If you’re in the market for a new car but don’t want to take out a new car loan, avoid telling the dealer how you plan to pay for it. By discussing payment separately, you can negotiate a better price before finalizing the transaction.

You might also consider taking a car loan but actively negotiating its terms. If you can get your dealer’s finance department to eliminate prepayment penalties, minimum holding periods, or rebates associated with loan retention, you can get a better price and pay off your loan quickly to avoid ongoing monthly payments.

Some dealers may also offer incentives like 0% financing to make the deal more attractive. By carefully reviewing the terms, you can get a great deal on your next car.

In today’s automotive market, cash is no longer king. Financing—even short-term financing—often results in better pricing, especially for retirees with good credit and liquidity.

If used correctly, this approach can save thousands of dollars in purchase costs while minimizing risk and complexity. It remains one of the easiest financial wins for retirees looking to protect capital and increase income.

You can also bypass the middleman and buy directly from the manufacturer. Tesla and Rivian are at the forefront of this direct-sales model, but other manufacturers like Honda and Scout Motors are also trying it. (5)

The industry is fighting back with lobbying and state-level restrictions, but if you live in a state without such restrictions, it may be worth contacting the manufacturer directly.

Given that 76% of car buyers don’t trust dealers to be transparent with pricing, and 86% expect hidden fees, it might be wise to avoid this industry altogether. (6)

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We rely only on vetted sources and reliable third-party reports. For more information, see our Editorial Ethics and Guidelines.

Kelley Blue Book (1); JD Power (2); Kelley Blue Book (3); Nada Dada (4); CarScoops (5); Kelley Blue Book (6).

This article provides information only and should not be considered advice. It is provided without any warranty of any kind.