Is It Suspicious To Buy A Car With Cash?

It is suspicious to buy a car with cash. When you buy a car with cash, it is not that easy to trace the money than credit or debit cards. Cash transactions are often used by criminals to launder their money or to pay for illegal activities.

It’s difficult to trace the money back to you. There is a frustration for a car dealership to handle the large chunk of money as they need to count the money with several people in the room.

Buying a car with cash becomes suspicious if you deal with cash. The seller will not be able to prove that the car title is clean if they have no records, and the buyer will be responsible for any liens or other encumbrances.

Moreover, if a car dealership receives $10,000 in single or multiple transactions, the dealership has to file an 8300 IRS form with the car buyer to report the transaction to the Internal Revenue Service (IRS).

Why Is It Suspicious To Buy A Car With Cash?

Buying a car with cash is suspicious due to following reasons:

  • Risk of fake currency
  • Suspicious cash sourced from illegal activities
  • Money laundering

Risk of Fake Currency

When someone is doing cash transactions in hefty amounts, you should always ask yourself: is it suspicious? In such cases, the risk of counterfeit money is higher. Criminals are getting more creative in terms of making counterfeit money. Fake currencies can look so real that it’s hard to tell the difference between them and original ones.

Suspicious Cash 

When you are buying a car with cash, the cash dealer may suspect you about the source of the money. They assume that you are trying to hide your black money, connected with criminal activities, by converting it into an asset such as a car. For instance, if you go to buy an expensive car and you come in with a suitcase of $20s, the finance manager at the car dealership may get suspicious and call the authorities. 

When you buy a car with cash, the dealer will not be able to see your ID. He or she will not know if you are a real buyer or a human trafficker. And if the dealer is aware of such activities, he or she can refuse to sell you the car.

Money Laundering

Money laundering is a method of making illegally obtained money. This involves using false documents, cash transfers, or other methods to hide the origin of funds. So, there might be a chance that car buyers are trying to launder their black money by buying luxury cars.

What Are The Disadvantages Of Buying a Car With Cash?

Here are the disadvantages of buying a car with cash:

  • Loss of emergency funds
  • Loss of investment opportunities
  • Fewer chances to negotiate on price with the car salesman

The biggest disadvantage when you pay cash for a car is that your emergency funds are at risk. 

In a nutshell, most young adults don’t have enough cash to buy a car and also keep back money in a savings account for a rainy day. You might that cash to pay for your health bills, your house rent, grocery expenses, etc. Moreover, if you lose your job, that extra cash will work out in those undesirable situations.

If you don’t want to face suspicion when buying a car with cash of more than $10,000, your car dealership must fill 8300 IRS form to report the transaction to Financial Crimes Enforcement Network and Internal Revenue Service (IRS). In this way, IRS can track the transaction activity and inform national officials about the source of cash.

Now, let’s say you buy a car for $8,000. Later on, you also get a service of the extended warranty from a car dealership by paying an extra $2000 cash, it might be viewed as the same transaction, provided that each transaction is one of a series of connected transactions. For instance, items or services negotiated during the original purchase are related to the original purchase. So, the dealership is required to file Form 8300.

Also, if the transactions of a car are made within 24 hours, they are related. However, if the transactions exceed 24 hours, they can be still related if you have a reason to know that each one is a series of transactions related to the car purchase. For those series of transactions, filling 8300 IRS form becomes mandatory.

Why Don’t Car Dealerships Let You Buy a Car Using a Debit or Card?

Here are the reasons why car dealerships are not willing to accept payments on a debit or credit card:

  • Transaction fee
  • Limited transaction per day on a card
  • Waiting time to receive payment
  • Refund policy on card payment

Car Seller Has to Pay Transaction Fee

The most common problem car dealerships face when accepting the payments on a credit or debit card is that they have to pay the transaction fee to proceed with the card payment.

Depending on which bank has issued you a debit card, the car dealer has to pay a credit/debit card swipe fee anywhere between 0.8% to 5%. Now, just imagine you’re buying a $30000 worth of car from the dealership. On the 1% swipe fee, the car dealership will have to pay a fee of $300.

Limited Transaction Per Day On a Card

Usually, there is a limited transaction on a debit/credit card, due to which the car dealer can’t get the payment in one go. Credit cards have a credit limit. So, if your credit card has a credit limit of more than the price of the car, there is no issue with it.

But the major problem lies in using a debit card to pay the cash for the car. Depending on the bank, the debit cards are tied to the daily and per swipe transaction limit.

Normally, these limits on the card are along the lines of $3,000 per transaction and $5,000 per day. Even if you notify your bank in advance about the transaction for the car purchase, not all banks are even capable of adjusting their transaction limits.

Waiting Time To Receive the Payment

Car dealers may have to wait for the transaction to process before payment is available. This could be a long wait, especially in times of high demand for cars. The delay could mean a missed opportunity to sell a vehicle to another customer.

Refund Policy On a Card Payment

When a payment is done through a credit card, the chargeback is possible for up to 60 or 90 days. If you purchase a car with your credit card and then you file a dispute after taking a car in your possession, the seller will be in a bad situation. If the car you bought was brand new, the dealership will have to handle the immediate depreciation when it will be returned.

Tips to Stay Safe When Buying/Selling a Car for the Cash

Here are the tips that can help you and the buyer to stay safe when you’re making a deal with cash for a car:

For Seller’s Safety

  • If the buyer makes a cash deposit over $10,000, then the seller needs to file a Form 8300 for the IRS. It’s a good idea to keep copies of all your documents and receipts for future reference.
  • Make sure that you keep a copy of your bank statements in case you lose them. Also, make sure that you write down the date that you receive the payment for the car.
  • If you’re a private seller, always meet your car buyer in a public place such as a parking lot or a shopping mall.
  • As soon as you receive the cash, make appropriate arrangements to deposit the cash in the bank safely.
  • If the seller wants a test drive, ask your friend or family member to join you for the ride. A test drive should be short and confined to populated areas.

For Buyer’s Safety

  • Like a car buyer, the car seller also needs to keep a complete record of the transaction.
  • The car buyer should check for any liens on the car. The vehicle you intend to buy should not have liens on it.
  • The car buyer should take the time to examine the vehicle thoroughly. He must make sure that the vehicle has not been damaged by accidents, or has undergone major repairs. The buyer must ensure that the vehicle is in good working order before signing the sale agreement.

Buying a car with cash saves you from paying the loan fee, financing, and monthly payments. Also, buying a car with cash will restrict you to buy a car within your budget.  In this way, you will be able to avoid completely depleting your savings.

Here are some useful tips for you to buy a car with cash.

1. Find A Reputable Dealer

Finding reputable dealerships that allow you to purchase a car using cash is an incredibly important step. Dealerships are run by independent businesses that are in business for themselves.

A reputable dealer will be able to help guide you through the process, and will also give you a good deal. To find a good car dealership, first, find its location. Ask around for recommendations, look at what people are saying about the dealership on social media platforms, and see if the dealership has had any recent problems.

2. Make an Effective Negotiation Of the Price

Effective negotiation of the price is the most important aspect of a car buying process, as it will set the value of the vehicle to the buyer.

Negotiation is a game of bluffing, and it’s a good way to get a deal done, but only if you can keep the bluff going. If you’re negotiating with a good car salesman, he’ll listen to your arguments, and use them to convince you that he’s right and you’re wrong. You need to do the same thing, but instead of listening to his arguments, you should listen to your instincts.

When negotiating the price, try to use phrases like ‘I’m sure we can come to some sort of agreement’, ‘We can work something out’ or ‘let me look into it’. You might even say, ‘I’d like to think about it’. If you are not sure what the right price is, just say, ‘We can talk about it later’. Remember, car dealers are not used to dealing with cash. They don’t want to lose money. They have no choice but to sell you their car at a fair price.

Do not rush the process. Negotiating a car price is a delicate matter. Once you make the deal, it is very difficult to back out. So, do not rush into any decision.

If you are looking for a specific car model, it is better to visit a dealership that specializes in that vehicle. Read the car ranking reviews online, the downsides of a car, and then decide whether it is worth enough to pay the price the dealership is asking for that car. If the seller refuses to lower the price, you should walk away. 

If you find a car that you like, you can always ask the seller if he will allow you to test drive the car. This way, you will know whether the car suits your needs before you buy it.

Always Keep Payment Evidence

When you buy a car with cash, don’t forget to keep the payment evidence like the car title, VIN, odometer reading, date of purchase, etc. 

This helps you to prove that you actually bought this particular vehicle at that specific time and that it wasn’t stolen. It also prevents any potential disputes between the seller and buyer.

To prove the payment for a car, you need to have the evidence, so you need to ask for the bill of sale, receipt, any bank statement, or any other proof from the dealer.

What About Buying a Car With Check?

Buying a car with cash doesn’t necessarily mean you hand over a chunk of paper money to the car dealership. Instead, some car dealerships will allow you to pay with a check. This can usually be done with a cashier’s check or personal check.

Most car dealerships prefer cashier’s check as it’s easier for the dealer to process. Cashier’s checks are issued by a bank and are guaranteed by the Federal Reserve, which makes them reliable, safe and a great way to go about buying a car.

One of my colleagues who works at a car dealership says that they accept up to $10000 in cash. After that, they usually advise the customer to get a bank check or they share bank details with them and ask them to deposit it straight into our bank account.

The check should include the name of the car dealership and a list of the vehicle’s model, year, VIN, make, and color, along with the seller’s signature and the date.

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