US retirees shouldn’t always pay cash for their next car. Here’s why and what to do instead (this simple hack can save you thousands)

Here’s why understanding how dealerships make money could help you negotiate better and save money on your next car.

Why dealerships prefer financing

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

Although the average price of a new car in 2025 was roughly $50,000, according to Kelley Blue Book, the average retailer profit per unit was about $2,202 as of August 2025, according to JD Power. (1,2)

A significant portion of that comes from financing and add-on products such as warranties, according to Kelley Blue Book. (3) Dealerships can earn around 1% of the loan amount in financing commissions, meaning $40,000 in financing can generate roughly $400 in additional profit for the dealer.

And since more than half of all auto loans are provided by captive lenders — the financing arms of auto manufacturers — dealers may also receive bonuses or incentives for enrolling customers in long-term loans. (4)

This is why financing a car can make a dealer more willing to negotiate the upfront price.

Cash buyers effectively eliminate this backend revenue stream. As a result, when a dealer knows you’re paying in cash, they may be less inclined to offer aggressive discounts on the vehicle’s sticker price.

This dynamic can potentially cost you thousands of dollars more on your next purchase. If you’re retired, this creates a particular challenge, because you may face a choice between paying more upfront or taking on an auto loan later in life.

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

What can you do?

If you’re in the market for a new car but reluctant to take out a new auto loan, avoid telling the dealership how you plan to pay. By keeping the discussion of payment separate, you can potentially negotiate a better price before finalizing the deal.

You could also consider taking the auto loan but negotiating its terms aggressively. If you can get the dealer’s financing department to remove prepayment penalties, minimum holding periods or rebates tied to loan retention, you could secure a better price and repay the loan quickly to avoid ongoing monthly payments.

Some dealers may also offer incentives such as 0% financing to make the deal more appealing. By reviewing the terms carefully, you could walk away with a strong deal on your next car.

In today’s car market, cash is no longer king. Financing — even briefly — often unlocks better pricing, especially for retirees with strong credit and liquidity.

Used correctly, this approach can save thousands off the purchase price with minimal risk and complexity. For retirees looking to protect capital and stretch income, it remains one of the simplest financial wins available.

You could 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 experimenting with it. (5)

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