Why pay cash? To avoid debt and be done with the purchase.
I cringe when I think of the dreaded debt trio we often see posted in threads: monthly student loan payments, monthly auto loan payments, and monthly mortgage payments. I drove $500 - $800 junkers until my student loans were paid off. We finally upgraded to used Honda Accords when we got married (worth about $4-5K each at the time we bought them in cash).
We have always paid cash for a car - be it used or new. Actually, it has more often been for a used car over the years as we have only purchased three new cars since we have been married. That's it since 1988 for new cars. The rest were all used.
Recent anatomy of a purchase decision this past week:
We had a Honda with 223K on it that we bought new in 2005 for $20,750 (+T/T/L). Formerly my car, but my spouse drove it the past 13 months as her work/commuter car when I got a new car last May. We did a little looking a year ago for her, but both came to the conclusion that we thought it was worth it to eek out another year of service for the Honda as it was still running great. Enter June 2018 - end of quarter/end of month combination, and some of the 2019's are coming out so we noticed there were quite a few incentives being offered. The next thing you know - as in that day - we were test driving new vehicles. I didn't know how serious my wife was about this.
We went through a TrueCar high volume dealer for the latest car purchase (although we didn't know they were a TrueCar dealer when we walked in the door as we were just trying out SUV crossovers from various top rated brands). This was, by the way, the first ever new car purchase for my spouse (outside of a family mini-van we bought new and both drove 20 years ago). Needless to say, she had just turned age 60, and we both decided it was her turn and time to finally get a brand new car. She had reached a time in her life she felt she could relax and enjoy a new car.
There were incentives with this deal whether we went with a 0% loan, a 2.94% loan, or paying cash. The dealer talked us through all three of the options, and cash looked - as usual - the best way to go. So we paid cash for the price negotiated, got $3750 incentives (manufacturer and dealer). Put a chunk of the purchase price on the 2% back CC, and wrote out a check for the rest. Sold the old Honda privately a few days later for $4600 cash.
Base cost of the 2005 Honda
$22,225 purchase price ($20,751 + tax/title/license)
-$ 4,600 selling price in 2018
What does $17,625 work out to for the 13 years of ownership? The capital spent on the car purchase for cash works out to something like $112.98 per month for the purchase price of the car for 13 years of ownership (obviously there was no financing, and this does not include the cost of maintenance/fuel/repairs/insurance/registration).
I don't want to ignore the cost of lost opportunity if that cash had been working for us in investments (would have been through the 2007-09 financial crisis) or just a simple rate of return based on interest. Finance rates for autos were 6.X% in 2005 at the time of purchase. CD's were giving 2.74% for 6 months and up to 3.73% for a 5 year.
Jumping to the purchase of the new car this past week, it confirmed what we have experienced before in all of our previous car purchases (new and used) and private party selling. Cash is just so much easier to deal with if you have saved up for a car purchase and don't have to deal with any pesky monthly payments.
That being said, we certainly feel fortunate that we have always been able to swing a cash deal purchase for our cars (new or used). To justify it, we keep our cars a long time as the Honda above illustrates. I believe last year, in 2017, a record number of 107 Million in the US had a car loan (43% of the US adult population).
Our guess is the percentage of BH's that pay in cash is probably higher than the general US population percentage, but who knows?