Although buying a car with cash has advantages, it might not be the best choice for your circumstances. Although they are more expensive in the long run, auto loans can occasionally come in handy.
Another query that we are unable to properly respond to because it heavily depends on your particular circumstances. Instead, we’ll provide some advice on the advantages and disadvantages of paying cash for a car so you can make a more wise choice.
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!
Downsides of Buying a Car With Cash
Drains your savings: Buying a car with cash may severely deplete your funds unless you’re extremely fortunate. You are well aware that if you deplete your accounts, an emergency will arise shortly after, or you will need emergency funds.
You could miss out on a low rate: Even if current savings rates aren’t great, borrowing money may end up being less expensive if the interest rate is lower than what you’d earn through savings. By obtaining a cheap auto loan rate, you may really save money if you have investments or fixed-term savings with respectable rates.
You wont build credit: Successfully repaying a car loan in will raise your credit score. If you anticipate needing credit in the future, car loan payments make up the majority of a payment history, which may be extremely beneficial for future borrowing and a proven way to raise your credit score.
A car loan can assist clear the way if you’re planning a mortgage or something else later in life.
As you can see, there is no right or wrong here. Everything depends on your personal situation, how much you have in savings and the interest rates you’ll get.
Whether you’re buying a car with cash or financing it, we’d love to help! Click here to get pre-approved today.