If you’re buying a car with cash, do you need a good credit score? It may seem like an obvious question but it’s one we hear a lot. That makes it the perfect subject for an explanatory blog post.
So do you need good credit when paying for your new car with cash?
No you don’t. Cash transactions do not require any credit so do not require a credit check or a good credit score.
Buying a car with cash
Buying a car with cash is the same as buying some sneakers or a new laptop. It’s just the numbers are just bigger and there is more paperwork!
Otherwise, the process is exactly the same.
While nobody expects you to walk into a dealership with a suitcase full of cash, if you have the money available to pay for a car, you can do it without using credit at all. That’s why your credit score is irrelevant for cash sales.
That isn’t the only benefit with a cash purchase.
No monthly car loan payment
The biggest advantage of paying cash for a car is no requirement for a monthly car loan payment. This means more of your monthly income in your pocket once you take out gas and running costs.
No interest to pay
With savings interest at an all-time low, now is a good time to use savings for good. As long as you don’t leave yourself short, using savings to buy something in place of credit saves a lot of money over the long term.
Say you buy a car worth $40,000. Over five years a 3% loan could cost over $3,000 in interest over the term. That’s cash in your pocket rather than a lender’s.
Easier to stick to budget
If you have a set amount of savings and are determined to not use credit, you have a finite amount of money to work with. This can be enough to force you to stick to budget and resist the temptation of those expensive extras!
If you’re using a portion of savings, you will still need to be disciplined. You don’t want to empty your savings account as you know that’s when something will happen and you need extra money!
Avoid negative equity
While annoying, negative equity is only really a factor when it comes time to sell the car or refinance the loan. Negative equity, or going upside down means the value of the car is less than the amount you owe on the loan.
It’s a situation many find themselves in and not something cash buyers have to worry about.
If you cannot pay cash for your next car and require help securing a great deal on a car loan, we can help. Contact us today to learn more!