Although most car purchases are made with auto loans in the U
S., there are benefits to buying a car outright with cash
People who just want a new car for the enjoyment of driving a new car may also consider a lease, which is, in essence, a long-term rental that normally costs less upfront than a full purchase. For more information about or to do calculations involving auto leases, please visit the Auto Lease Calculator.
In some cases, a car might not even be needed! If possible, consider public transportation, carpool with other people, bike, or walk instead.
Buying a Car with Cash Instead
- Avoid Monthly Payments-Paying with cash relinquishes a person of the responsibility of making monthly payments. This can be a huge emotional benefit for anyone who would prefer not to have a large loan looming over their head for the next few years. In addition, the possibility of late fees for late monthly payments no longer exists.
- Avoid Interest-No financing involved in the purchase of a car means there will be no interest charged, which will result in a lower overall cost to own the car. As a very simple example, borrowing $32,000 for five years at 6% will require a payment of $ per month, with a total interest payment of $5, over the life of the loan. In this scenario, paying http://paydayloansohio.net/cities/hannibal in cash will save $5,.
- Future Flexibility-Because ownership of a car is 100% after paying in full. There aren’t any restrictions on the car, such as the right to sell it after several months, use less expensive insurance coverage, and make certain modifications to the car.
- Avoid Overbuying-Paying in full with a single amount will limit car buyers to what is within their immediate, calculated budget. On the other hand, financed purchases are less concrete and have the potential to result in car buyers buying more than what they can afford long term; it’s easy to be tempted to add a few extra dollars to a monthly payment to stretch the loan length out for a more expensive car. To complicate matters, car salesmen tend to use tactics such as fees and intricate financing in order to get buyers to buy out of their realm. All of this can be avoided by paying in cash.
- Discounts-In some cases, car purchases can come with the option of either an immediate rebate or low-interest financing. Certain rebates are only offered to cash purchases.
- Avoid Underwater Loan-When it comes to financing a depreciating asset, there is the chance that the loan goes underwater, which means more is owed on the asset than its current worth. Auto loans are no different, and paying in full avoids this scenario completely.
There are a lot of benefits to paying with cash for a car purchase, but that doesn’t mean everyone should do it. Situations exist where financing with an auto loan can make more sense to a car buyer, even if they have enough saved funds to purchase the car in a single payment. For example, if a very low interest rate auto loan is offered on a car purchase and there exist other opportunities to make greater investments with the funds, it might be more worthwhile to invest the money instead to receive a higher return. Also, a car buyer striving to achieve a higher credit score can choose the financing option, and never miss a single monthly payment on their new car in order to build their scores, which aid other areas of personal finance. It is up to each individual to determine which the right decision is.