Advertiser Disclosure

Cash Discount on Large Purchases: Good Deal?

Nov. 17, 2014
Credit Cards, Rewards Credit Cards
At NerdWallet, we strive to help you make financial decisions with confidence. To do this, many or all of the products featured here are from our partners. However, this doesn’t influence our evaluations. Our opinions are our own.

If a merchant offers you a cash discount on a large purchase, should you take it? Before you pay with cash to get a better deal, consider whether the benefits of using a credit card would outweigh the discount. These benefits may include rewards and protection benefits, as well as an assist on building your credit.

Merchants who accept credit cards have to pay interchange fees. That’s why some stores will give you a discount on purchases if you pay with cash. But is cash really king? Here’s what you should consider before you decide how to pay.

Is the cash discount on large purchases big enough to offset the rewards?

Rewards credit cards typically offer between 1-2% rewards back on purchases. If the discount is less than this percentage, you’re not only losing money by not getting rewards, you’re also losing other benefits that credit cards offer.

Consider a cash discount at a gas station: Let’s say that gas costs $4 per gallon and you can get a discount of 5 cents per gallon if you pay with cash. If you pay with a credit card with a 2% rewards rate, you’ll effectively pay $3.92 per gallon. If you pay with cash to get the discount, you’ll pay $3.95 per gallon. Is this 3-cent price difference a big deal? No. But it shows that a cash discount isn’t always the best deal.

Will I potentially need coverage on this item?

Credit cards are lauded for their rewards and credit-building assistance. Yet, other benefits — like price and purchase protection, as well as extended warranties — are often ignored. At least until you need them.

Price protection reimburses the cardholder if a covered item goes on sale between the date of purchase and a specified future date. Purchase protection reimburses the cardholder if a covered purchase is lost or stolen within a specified period. Not every credit card comes with these protection benefits, but they’re good to have just in case — and you’ll miss out on them if you pay with cash.

Most credit cards offer extended warranties on purchases, generally adding an additional year to the manufacturer’s warranty. Otherwise, if you wanted extra coverage, you’d need to purchase an extended warranty, which could possibly negate any discount you received for paying cash.

Do I want or need definitive proof of my purchase?

If you choose to pay for your purchase with cash, you’ll likely get a receipt. However, if you lose that small scrap of paper, you’ll be without proof of your purchase, which could keep you from showing how much you paid for the item, if necessary. If you use your credit card (or your debit card), you’ll receive a receipt, and your purchase amount and merchant information will be recorded on your card statement. If you need to prove how much you paid for something — for tax purposes or for your personal records — it won’t be a problem.

» MORE: How to maximize credit card rewards when shopping

The takeaway: Before you pay with cash to get a better deal, first consider whether the benefits of using a credit card would outweigh the discount. Ask yourself: Are the credit card benefits better than a potential cash discount? Will I need added coverage on this purchase in the future? Do I need proof of this purchase? If the answer to all three is “yes,” pay with plastic. If not, you’ve have to consider the pluses and minuses, and perhaps pay with cash.

Cash register with sale display image via Shutterstock