November 28, 2022

Business Update Blog

Pay By Cash Or Credit Card? Deciding The Best Way To Save Money

Whenever you buy something, it’s good to ask yourself whether to pay by cash or credit card? There are pros and cons of each. This article will highlight which was is best.

Pay By Cash Or Credit Card Fixing A Car

After six months of a progressively louder clicking sound emitting from my engine, I decided to take my car in for a free inspection.

After only about five minutes, the auto-mechanic mentioned that he was sure my fan unit was broken and needed replacing. Great. “How much?” I asked.

His brother, the operations manager, got back to me and said, “$925 before tax, which is about $1,004 after tax.” Sales tax is 8.5% in San Francisco.

Phew! I was mentally preparing for some $3,000+ bill because the clicking sound was near the engine. When you go on the car forums, you always read about the worst situations. Here’s a short recording if you’re curious.

The operations manager told me I’d have to come back next week because he’d have to order the entire fan unit. No problem. In the meantime, I decided to do what any rational person would do and check what fan units would cost online.

A bunch of options came up that were 30% lower than the shop’s quoted price. The next week, I gave the shop owner a ring and asked why such a huge price difference. He said the difference was between an original part from the manufacturer and a replica without a warranty.

Sensing his weakness over the phone, I asked him if there was any way we could get the price down. After stumbling through some umms and awws, he responded, “Why yes, if you pay ‘cash cash,’ not check, I’ll knock the price down to $750 out the door.

Will I still get a receipt and the warranty?” I asked.

Absolutely,” he replied.

Enticing! What would you do?

The Dilemma Of Paying Cash To Save On Cost

Saving 25% off the original $1,000 out-the-door price is a lot.

I was already feeling relief that I didn’t have a $3,000+ bill. But to then spend under $1,000 made me feel like I was getting an absolute bargain!

At this point in my life, time is way more valuable than money. I probably could have saved a little more if I had shopped around for a cheaper auto mechanic that didn’t specialize in my automobile. But the shop’s Yelp ratings were great, and they knew what needed to be fixed.

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Here were some of the things I had to consider when paying cash.

1) A lack of protection.

By not being able to pay by credit card or check, there is no record that I ever paid for services rendered. I could videotape me paying them cash, but I’m sure the shop owner wouldn’t allow it. I’ve paid cash for things before that turned out not to work properly or not be authentic.

2) Might not get a valid warranty.

A warranty against poor workmanship or a faulty product is something we all deserve. My immediate concern when the service manager mentioned I could pay all cash was whether that meant the service would be done off books, and therefore, no warranty. But he immediately reassured me I would get a warranty and a receipt. I still felt hesitant they would not back up their warranty.

3) Not used to carrying around a lot of cash.

The most cash I carry in my wallet is $100 since I charge everything on either my business credit card or a personal credit card. Whenever I’m holding a lot of cash, I always get a little paranoid.

4) Potential aiding of tax evasion.

I’m assuming the reason why I can get a 25% discount is that this small business won’t be reporting the work done to the IRS. It will be “off books.” Its profit margin will be 100% on labor and whatever markup it charges on the OEM part.

I don’t feel guilty paying cash at a favorite restaurant, so why should I feel guilty paying cash for auto service? What a business does with its customer’s cash is none of my business. Maybe the business is just trying to save on paying a credit card transaction fee. I should always assume the best in people.

5) No rewards points or sign-up bonus.

Charging $1,004 to my Chase Freedom Unlimited credit card would earn me a basic 1,004 rewards points. That’s only worth up to $20. That’s not that great.

If I was getting a new Chase Freedom Unlimited credit card, however, I would get a free $200 after spending $500 in three months. Therefore, I’d get about $220 back.

But, I have been doing a lot of credit card research lately and I could get the following cash back bonuses or rewards with the following cards.

Capital One Rewards Credit Cards

  • Capital One Venture Rewards Credit Card: Earn a 100,000-mile bonus when you spend $20,000 within the first 12 months of membership. Or get 50,000 bonus miles, equal to $500 in travel rewards after spending $3,000 on purchases within the first three months. $95 annual fee.

I could open two credit cards and charge $500 each to pay for my auto-mechanic bill and get $300 in free cash. My bill would effectively drop to $700, or $50 less than paying cash. Further, I would have purchase protection and a nice paper trail, just in case of faulty service or parts.

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Alternatively, given I use Beast Master for business, I can expense the repair and automatically save 25%, whether I pay by cash or by credit card. If I pay by cash, I would just have to withdraw the cash from my business and then track the expense. If I pay by credit card, here are a couple choices as a Chase business client for the past 10 years.

Chase Business Credit Cards

  • Chase Ink Business Cash: $750 cash back after spending $7,500 within three months of opening. There’s no annual fee.
  • Another great choice is the Chase Ink Business Unlimited: $750 cash back after spending $7,500 within three months of opening. 1.5% cash back on all purchases. Also no annual fee.

Besides not getting the lower $700 cash price, the other downside to paying with a new credit card is spending 5-10 minutes applying for each credit card and then waiting for 7-10 days to receive the cards in the mail.

But I am in no rush because the fan has already been making this clicking noise for six months. Waiting another couple weeks is no big deal since I only drive about 4,000 miles a year.

Pay By Cash Or Credit Credit?

I’m curious to know what you’d do since the community always seems to come up with something I’m not seeing. Here is a summary of the three options:

1) Pay by cash. The easiest and quickest way to go. In this scenario, I get 25% off ($1,004 down to $750) and then get another 25% off if I write off the auto repair as a business expense. My biggest concern is that they install the fan improperly or the fan breaks within 12 months and they won’t honor the warranty, despite my receipt.

2) Pay by credit card. The conservative person would go the safe route by opening up at least a couple rewards credit cards to get purchase protection and at least $300 in free cash or 30% off. The credit card sign-up bonuses would effectively make the auto repair $50 cheaper than the cash route ($700 vs. $750), while also providing peace of mind.

3) Do both. Pay by cash to get $250 off after the job is done well. While waiting for the 1-2 hour job to get done, spend 10 minutes opening up a couple no annual fee credit cards to get at least $300 in free cash after spending $1,000 on something else. This way, I’ll get at least $550 in savings, if not much more if I keep opening up new cards after three months or so.

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The Choice Is Straightforward

The sad reality is that I have to do a three-year service that’s one year overdue, a brake bleeding service, and I also need to get new brake pads soon. All this will cost another ~$1,500. But of course, if I pay cash, they’ll give me a $300 discount!

Ah, the expenses never end when owning a car. At least I know that if I open up a new rewards credit card, I have something purposeful that needs charging. The last thing one should do is open up a credit card and buy something you don’t need just for the rewards.

In Conclusion

To conclude, the debate between pay by cash or credit card is simple. In this situation, it’s best to pay by cash and get the $300 discount. Then, I’ll open up a new rewards credit card to get the free money for new car service expenses.

My favorite rewards credit card is the Chase Freedom Unlimited. Check it out! It has no annual fee and you get $200 after spending only $500 within three months of opening. The 1.5% unlimited cash back is incredible too.

Pay off Your Debt Faster

If you don’t have enough cash, getting a personal loan from Credible is a good place to start.

Personal loan rates have come down significantly in comparison to the average credit card interest rate. Thus, if you have expensive credit card debt, consider consolidating your debt into a lower interest-rate personal loan.

Credible has the most comprehensive marketplace for personal loans. Up to 11 lenders compete for your business to get you the best rate. Get real personal loan quotes in just two minutes after you fill out an application. Check out Credible today and see how much you could save.

Vehicle Insurance Recommendation

The best place to get affordable car insurance is with Allstate. With Allstate, you’re in good hands. Getting a quote is free and easy. Make sure you have the best auto insurance possible to protect yourself and your family. 

Every year, there are hundreds of thousands of accidents on the road. You need great auto insurance to protect your finances as well.

For further suggestions on saving money and growing wealth, check out my Top Financial Products page.

In addition, if you enjoyed this article and want to get more personal finance insights and tips, please sign up for the free Financial Samurai newsletter. You’ll get access to exclusive content only available to subscribers.

Readers, what would you do? Pay by cash or credit card? Pay by a rewards credit card? Or do both? If you’ve faced a similar situation before, what have you done to save the most amount of money?