Cash VS Car Financing: Which Is Better?

Cash is king! We’ve all heard about that before. But when it comes to purchasing cars, is cash really the best way to go?

Well not necessarily.

Cash purchases may have advantages but it also has disadvantages, especially when your cash can be used better elsewhere. Car financing also has its own advantages and disadvantages.

So before you decide whether to pay your car in cash or through a loan, first read what we have to say below.

Advantages Of Paying In Cash

Having enough money saved for a car purchase is a great option. There are many advantages of using cash to purchase your vehicle. The first one is not having to worry about interest since you are not getting a loan. Also, you don’t have to worry about the requirements or qualifications of having a loan. It can save you time and the headache of doing research about the best lenders.

Additionally, cash transactions won’t add to your debt or get you into debt. Also, you won’t have to worry later on in case you run into financial trouble. Finally, your debt-to-income ratio will also not be impacted on your credit report. This can make it easier for you to qualify for other types of loans like a mortgage.

Disadvantages Of Paying In Cash

At first, it seems cash is the best option to pay for a vehicle when you have the savings for it. However, one of the disadvantages of paying for your car in cash is depleting your savings. What if there are future emergencies that you didn’t foresee? You’d be pushed to sell your car fast and that could mean selling it at a lower price for it’s value just because you need the money right away.

Another disadvantage is throwing away the interest or investment returns that you could have if you kept the cash. Check and see if the interest rates you’d get out of keeping your cash would outweigh the interest rates that financing charges. If so, then you also better rethink spending your cash on that car.

We all know cars are expensive and the car that your cash might afford today may not be the most reliable or the best suited for your needs. Your options would be limited because of the amount of cash you have.

Lastly, paying in cash won’t help you reestablish or start a credit history. However, if you have a loan that you manage properly, your credit history will be better rated.

Advantages Of Financing A Car

Paying a car through financing a company is better when you have your eye on a newer car and you can’t save up for it as quickly as you hoped you could. If your current cash budget can only get you a used car, you may be spending more on repairs in the upcoming months rather than buying a new one that poses fewer problems. Also, many people need a car to take them to work or other places. Public transport is a good option but not all offer direct routes to get to where you want to go. Some also don’t provide their service 24/7. Getting your own car saves time and sometimes even money.

Financing a car also makes it feel more affordable because the price of an expensive item is spread. You don’t have to deplete your savings and this prevents you from being financially challenged in case of emergencies.

As we’ve mentioned, car loans can affect your credit history. However, it can affect it in a positive way as long as you pay your loan on time. That proves that you are reliable and could afford to pay your debt.

Disadvantages Of Financing A Car

Interests and other fees are one of the main disadvantages of having a car through financing. Your car would be more expensive than what it is if you pay in cash. Most feel that this additional price is worth paying due to the advantages you get out of financing the vehicle. Make sure to do your research well and consider all fees, repayments, interests plus other charges before agreeing to a car loan.

Although car financing can open the doors to a lot of car selections, it can also limit car choices. Depending on your car loan, some would only allow specific vehicles. They do this to secure the value of the vehicle for longer because they may also use the value of the car as collateral.

Some lenders may also repossess the car if you can’t pay for your loan. They’d just sell them to make for their losses.

Conclusion

Paying for a car in cash or through financial companies have their own advantages and disadvantages. Even if you have the cash for that car, it can still be more beneficial for you to have them through financing. Think things through and do your research before making that final decision.

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How To Finance A Car The Smart Way