What is the best way to pay for a used car?|2020-11-20 (2024)

FAQs

What is the best way to pay for a used car?|2020-11-20? ›

The most efficient way to pay for your vehicle is to bring a cashier's check, which is more secure than a personal check, and guarantees that the funds are actually available.

What type of payment should I accept for my used car? Cash and bank drafts that are delivered in person are the best and most secure forms of payment to accept when privately selling your used car. Avoid personal cheques or wire transfers as these are more susceptible to fraud. More tips on avoiding used car fraud.

Direct Cash Payments

Cash is considered by most as the best form of payment when selling a car. Through cash payments, you are able to transact with almost any potential buyer who wants to buy your car and receive payments directly.

One option is to use physical cash, but that's not the only way. You can also get a cashier's check from your bank, write a personal check, or initiate a wire transfer from your bank to the dealer or seller's account. Whatever option you choose, make sure you know the final amount of the transaction.

The 20/3/8 Rule is a guideline designed to keep your car purchase within your financial boundaries. It consists of three parts: a down payment of at least 20% of the car's price, limiting the loan term to three years, and ensuring that your car payment does not exceed 8% of your monthly income.

Personal and Cashier's Checks

Like we mentioned, it's pretty dangerous to walk around with your pockets full of large bills, and for that reason the buyer may choose to pay you in a personal or cashier's check. Besides cash, a certified cashier's check is the most secure way to accept payment during a private sale.

In addition, to be safe, it's a good idea to request a cashier's check for the money that's drawn from a local branch rather than a personal check. The vehicle buyer may have to pay a fee, but you'll avoid a likely bigger one for taking a bad check that bounces.

Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment.

Of consumers purchasing new vehicles in 2024, 80.24 chose to finance their vehicle, versus 84.85 percent in 2022. Credit union financing made up 20.14 percent of all auto loans during the same period. Captive financing surpassed banks to become the most common lender type at 31.39 percent.

According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%. You can use a car loan calculator to calculate a monthly payment within your budget.

What happens when you pay your car in full? ›

Once your car is paid in full, there are no longer lien holders and you may be able to contact your insurance company to see if it can reduce your coverage or offer you a better rate.

If you want to save as much as possible and are averse to carrying debt, buying a car upfront with cash is likely your best bet. You're also more likely to buy a car that fits your budget and less likely to overspend on a more expensive vehicle.

One method that stands out for its simplicity and effectiveness is the 60-20-20 rule. This approach involves dividing your post-tax income into three categories: 60% for necessities, 20% for savings, and 20% for wants.

The 50/30/20 rule can be a good budgeting method for some, but it may not work for your unique monthly expenses. Depending on your income and where you live, earmarking 50% of your income for your needs may not be enough.

If you have a large amount of debt that you need to pay off, you can modify your percentage-based budget and follow the 60/20/20 rule. Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.

Other than paying with cash, personal loans are probably the cheapest option in terms of the total cost. It can be arranged over the phone, online or face-to-face. It covers the whole cost of the car (but it doesn't have to). You can get a competitive fixed interest rate if you shop around.

It's good practice to make a down payment of at least 20% on a new car (10% for used). A larger down payment can also help you nab a better interest rate. But how much a down payment should be for a car isn't black and white. If you can't afford 10% or 20%, the best down payment is the one you can afford.

No, a cashier's check really isn't any safer than a personal check as payment when selling your car. They can still be faked and they can still bounce. The feel more official, which makes people think nothing can go wrong with them, but that's simply not true.

If you're buying a used car at a reputable, licensed dealership, you can use just about any way to pay you want, whether by personal check, debit card, credit card, cashier's check, or even cold hard cash.