For that matter, even if you can't pay cash you shouldn't get lulled into assuming you have to take the dealer's financing. Shop around a bit, see if you can find a loan where only the bank gets a piece of the pie, instead of both the bank and the dealer. For my last purchase, my credit union gave me about half the rate the dealer offered.
But don't let them know that until they're getting ready to fill out a loan application.
Agreed. Which is why you should never tell them you are paying cash upfront, unless you are dealing with an individual seller who obviously might prefer not to work with financing company. They will give you a better deal if they think they can make it up on the financing.
Individual sellers will more likely give favor to cash in hand, at least I know I would rather have cash in hand for my car.
It's better to lead them on, thinking that you are going to finance. Then, when you have a final price, drop the cash bomb. Be ready for some furious attempts to raise the price in a bunch of ways, after that revelation!
It's a trade-off. For many people who don't understand how to figure out interest rates and payments, it gives the dealerships one more number to play with to hide the real price of the car. As others have mentioned, if you do understand it and can decipher it, it gives another place for them to make money.
Seconding Tyler's point, but with a slight amendment.
Paying cash is generally[] not better than financing through the dealership, but is much better than bringing your own financing.
[] There are a couple more factors that I haven't seen mentioned, specifically that paying cash is generally a lot faster. For the dealership, there isn't necessarily a benefit, but for the salesperson, a quick sale means they might get to slot an 'extra' sale in for that day, so it's worth it to them to play around with their commission on what they might consider a 'gimme'. If paying cash, it is best to do so on busy days so that there are other 'fish' for the salesperson to go to next. If you're the only person there, there's no real sense in urgency.
They make money on the financing, so are likely to be more willing to negotiate on price if they think they will make it back on the financing.
Doesn't mean you can't can't _pay_ cash, but 95% of dealers you don't want to be too upfront about that.