At one point or another, everyone starts thinking about getting a car, whether it’s their first or tenth. The market is quite big, with opportunities to either buy or finance and come on top. But finding the right deal is never easy, especially with a lucrative market like the auto market. Whether you’re paying for it using cash or credit, you want to make sure you’ve done all the homework needed.
To help you navigate through a murky decision, here is an informed opinion on car financing and its cash counterpart.
Advantages of Cash (Disadvantages of Financing)
It’s hard to disagree about the comfort of paying for a one-time purchase instead of having to make payments for months or years. The simplicity of the process is what makes it alluring, even to those who may not be able to completely afford it. After all, all you need to do is visit the car dealership, pick a car you like, perhaps choose a pretty, cool color, and then pay it off using cash on the spot. Once you drive away you don’t need to ever worry about making a payment to avoid an overdue bill. You won’t have to deal with lending institutions, like banks, which can make your life quite miserable if you choose the wrong one.
A lot of people like to purchase their car so they can save enough money in a relatively short period to buy their next one. Thinking long-term can be quite beneficial when it comes to such big purchases. You should also note that when you pay for a car using cash, you’re getting the lowest possible price on the market if you’ve done your research. No matter how convenient a financing plan is, it’s pretty hard to find a plan with zero interest rate that doesn’t latch some add-ons. The legal ownership of the car is solely yours, unlike financing where you have to wait after completing payments to own the car. This means that the car you now own is an asset that you can use favorably, whether to secure collateral loans or sell quickly when needed.
Disadvantages of Cash (Advantages of Financing)
While it’s easy to get lost on the simplicity and quickness associated with cash purchases, sometimes it can be a pretty bad move that can limit your potential financial routes. If you can land yourself a 0% APR deal, then you’ll be on the winning side. Professionals may provide information on popular financing deals that give insight into saving money. A 0% APR is hard to land, but once you land it you’ll save a lot of money. The catch is that you have to have excellent credit. Unfortunately, cars depreciate, which means that the value you’re paying money for right now is going to be cut by 50 or 60% by the time the car is 3 years old -- the point you will have fully paid it off. Used cars may not suffer from the same value depreciation of new cars, but they are still sold at a loss. A financing plan can be a wiser option if you’re interested in not only saving money but also increasing it. You can use the same amount of cash you were going to buy the car with as down payment, and the rest can go into an investment route like a high-interest savings account or stocks.
While taking complete advantage of the investment opportunities provided by the amount of money you were going to purchase the car with is lucrative, it’s not for everyone. You should try and approach such a matter with due diligence to know what exactly you’re getting into. Successful investments don’t depend on luck, rather studying the opportunity closely. You should also know that even if you don’t invest that cash, you can still have emergency funds after financing the car to help keep you safe in times of need.
Which Should You Choose?
The final decision should always be made after taking into consideration all the facts and information you’ve learned. If you happen to be an investment-oriented person, you’re much better off financing your new car, helping you land more opportunities with some extra cash you have in hand. Finding a good financing deal can sometimes be objectively better than cash, so make sure you compare a lot of deals before you get the car. No one can blame you if you still choose to remain on the safe side; buying the car can be pretty convenient.
While the most obvious solution is to pay cash for anything, the problem is that scenario will probably only happen if you are one of the top 1%. Unfortunately, for the rest of us, the decision of buying an expensive commodity or asset like a car bears a lot of weight on our financial future.
Published by Samantha Brown