Can I buy a car with cash?

‘Cash is king’ is a commonly-heard phrase in the world of retail. Some think they can buy anything they like providing they have a big enough stack of £50 notes. However, the old adage isn’t always the case when buying a car.

According to figures from the Finance & Leasing Association (FLA), 78% of new cars sold in 2023 were financed, with many drivers spreading the cost to make owning a desirable – and, otherwise, possibly unaffordable – model easily attainable.

So, with most dealers expecting you to finance your next set of wheels, how hard is it to pay for a car with cash? Here, we share the ways and means of buying a car outright and help you decide whether it’s the best option for you.

Can I buy a new car with cash?

Despite no longer being the most common way to get behind the wheel of a new car, you’re still able to buy a vehicle outright using cash. That said, the dealer will likely have preferences about how you go about it. 

In many cases, dealers will have reservations about you paying for a new car upfront with physical money. This is largely because banknotes are difficult to trace and could be counterfeit. Since all cars on the market, other than the Citroën Ami, now cost more than €10,000 (around £8700), those who accept a cash payment would be considered a ‘high value dealer’. This means they will come under strict supervision from HMRC to prevent cases of money laundering.

Instead, dealers will typically prefer you to use a debit card or bank transfer. Both options allow you to transfer a large sum of money directly from your bank account to the dealer, and are much easier to trace if anything goes wrong.

Unfortunately, many bank accounts will feature a transaction limit, which restricts the amount of money you can spend in a 24-hour period. Limits can sometimes be increased or temporarily removed entirely, but this isn’t always the case. If the amount exceeds your account’s maximum possible transaction limit, you could use CHAPS (Clearing House Automated System). 

Like a bank transfer, CHAPS is used to send money from one account to another, but is specifically designed for high-value transactions. You can use CHAPS by visiting your local bank with valid ID and the details of the person you want to pay, over the phone with your Telephone Security Number or voice ID, or via your banking app. CHAPS is considered as a safe way to transfer money, being run by the Bank of England, and will complete the transaction on the same day you make it. 

You could also pay for a car using a bank draft. While it’s no longer a common method, particularly when buying a new car, it’s a secure method of payment as the draft will be guaranteed by the bank. Unfortunately, bank drafts can take far longer to process compared to other methods of payment so it’s unlikely that you’ll be able to drive away in your new car before it’s been cleared.

Can I buy a used car with cash?

Whether you’re able to buy a used car with cash will likely depend on the cost of the car and where you’re buying it from.

If you’re buying a cheaper used car – say, under £8700 – from a dealership or private seller, you might be able to pay with physical money. But some sellers prefer dealing with cash as it’s a straightforward process and they’ll receive the payment immediately; however, it still comes with the same risks as buying a new car with cash money.

Private sellers who have agreed to accept cash for their car may wish to be present when you withdraw the money from your local bank. This can help to reduce the risk of being given the incorrect amount of money or counterfeit banknotes.

If the private seller or dealer refuses to accept money for the car, you should still be able to pay for it via other means, such as a bank transfer, card or bank draft. Nevertheless, take care when using a third-party payment service. While many of these are reputable and can be used to transfer money very quickly, tracking payments can be much more difficult compared to other methods – creating the risk of complications and scams.

Advantages to buying a car with cash

- Buying outright is often cheaper than finance in the long run
- You won’t need to make monthly payments 
- The car is your property from the moment you sign the registration documents
- There’s no approval process, so transactions are quicker
- You might be able to negotiate a better price
- You can choose from a wider selection of used cars (some dealers won’t offer financing options)

Disadvantages to buying a car with cash

- You’ll need to have the full amount upfront
- Security concerns around carrying large quantities of bank notes
- You’re paying a large amount for a depreciating asset
- Your choice is limited to the cars you can afford 
- Financing can help you increase your credit score

Alternatives to paying with cash

The main alternative to paying for a car outright – either with physical cash or a bank transfer – is to pay the full amount with a credit card. This offers a similar experience to using a debit card but lets you spread the cost of the payment while still owning the vehicle. Using a credit card to buy a car also gives you another layer of protection, with the card provider able to offer assistance in the event of a dispute.

Nevertheless, buying a car with a credit card has its drawbacks. For starters, not all dealerships will accept credit card payments as they can result in additional fees. Perhaps more importantly, almost all credit cards will feature a spending limit – typically about £3,000. Moreover, if you use a credit card to either partially or fully pay for a car, you’ll likely be subject to interest and risk the vehicle being repossessed if you can’t keep up repayments.

That means a bank loan or personal loan may be a better option. Like conventional forms of car finance, this will allow you to spread the cost, but there’s no deposit to pay, no mileage restrictions (or penalties that result from it), and it enables you to choose from a wider range of cars – including used models being sold privately.

There are still some drawbacks to taking out a loan to buy a new car, though. If you have a bad credit score, banks are less likely to give you the money to buy it – particularly if you’re planning to buy an expensive model. Moreover, once you take out the loan, you’ll still need to pay it back in full, even if you sell the car on or hand it back to the dealer.

What Car? Says…

What Car? content editor, Jack Mortimer, says: “Just because the vast majority of drivers finance a new car doesn’t mean you should. Buying outright offers a number of advantages, not least that the car is yours and there’s no interest to worry about. 

“That said, combining all of the instalments into one lump sum can be difficult for your wallet – particularly if you’re buying a new car, which will typically lose more than half its value in the first three years. The best option for you will depend on the cost of the car and who it’s being sold by. With that in mind, weigh up your options and see which choice comes with the best advantages for you.”