Your Next Car: Cash or Financing?

February 21, 2017

Before you decide on a payment plan for your next car purchase, evaluate these options to see what will work best for you and your budget.

The process of buying a car can be fun, but organizing your finances can be chaotic if you don’t have a strategy in place. When you’re buying a new car, you have two options: you can either pay cash in one lump sum, or you can use financing. Regardless of what method you stand behind, there are advantages to both.

Before you decide on a payment plan for your next car purchase, evaluate these options to see what will work best for you and your budget:

Option 1: Paying Cash

It’s common for people to buy used cars with cash, as they’re cheaper in price compared to new models. A lot of people believe that this way of car buying is the better option: it’s simple, it’s interest-free, and it means you don’t have to make monthly payments.

If you’re already in a lot of debt, or have trouble keeping up with monthly payments, paying cash for a car is a great way to ensure that you won’t be damaging your credit score by digging yourself deeper into financial stress. These are just some of the benefits of buying a car with cash, however it isn’t a realistic option for everyone.

Option 2: Finance

When you agree to finance a car, you agree to the terms and conditions that the lender presents you with, including monthly payments. Within these monthly payments are interest rates, a fee that you pay to the lender for letting you borrow the money. This can be the downside of financing. However, if you can commit to making monthly payments, and you can find a car loan with a low interest rate, you’ll lose little money and won’t have to worry about overspending from your personal savings account.

Option 3: Pay Cash and Finance

Once you’ve paid cash for a car, it’s impossible to get that money back, and if you’re irresponsible with your auto loan, you’ll be drowning in debt. This option is the happy medium – paying cash and taking out a small loan is a great choice for people who have some money saved, but are still interested in obtaining financing. The more money you initially put down on a vehicle purchase, the less you’ll have to finance, which will also mean that your interest rate and monthly payments will be lower.

There are payment options out there for people who are in all types of financial situations, and most dealerships are happy to help regardless of what your budget might be. It’s always important to do the math before you agree on a specific payment method, and it should all start with this one question: What makes the most sense for me?


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