This article reminded me of the time Mom dickered with a car dealer on a price for a car, got a firm quote (after discussing loan terms more favorable to the dealership than herself) and then pulled a wad of cash out of her purse to pay for the car on the spot. She meant to pay cash all along, as it was from an insurance settlement — she just wanted to string the guy along and see how low he’d go.

The suggestions in the article are pretty good; however what we’ve done with our vehicles is pay them off with a home equity loan that offered us a significant tax advantage. That strategy might not work for everyone, especially in these tougher times when you don’t want anything against the equity in your home unless you’re certain your savings and employment are rock-solid.

First, the insurance costs in the second scenario are lower as well. For those first five years, the person owns a used car which will have lower insurance costs than a new automobile.Second, considering used cars in your buying decision can save you money. When you run the numbers on your car purchase, always include used cars, particularly ones from model years with a good reputation. Sometimes, those cars can save you significant money over the long haul through insurance savings, plus they allow you to retain some of your cash savings for your next car purchase.Finally, having the money in the bank puts you in control. If you can buy the car in cash, you’re no longer worrying about your credit history or about whether a bank will offer you a good rate. You have your cash, you find the best deal, and you buy. Simple as that.

via Should you pay cash for cars? Yes! Here's the math to prove it. – CSMonitor.com.