When it comes to buying a car, choosing how to pay for your purchase can be just as difficult as picking out the type of vehicle you want. Most buyers take out auto loans to borrow the cash needed to make a purchase, while some lease or rent cars from dealers, but you can also pay for a car with cash. Buying a car with cash offers some significant benefits over getting an auto loan.
No Credit, No Problem
Any time you try to get a loan, the lender looks at your credit score to decide if it should give you a loan and how much interest to charge. Young people tend to have short credit histories, which can make it hard for them to get approved for loans. If you pay for a car in cash, your credit score doesn't matter.
Paying for a vehicle with cash can cut the total amount you end up paying to buy a car. When you pay with cash, you only pay the actual price you and the dealership agree on. When you take out a loan to pay for a car, you have to pay that price, but you also have to pay other costs such as financing fees and interest. Over the life of an auto loan, interest can add thousands of dollars to the cost of a vehicle.
Selling Your Car
Buying a car with cash can make it easier to sell your car later on. If you pay with cash, you immediately get the title to the car so you can sell it whenever you want. On the other hand, if you take out a car loan, the lender keeps the title until you finish paying the loan. As a result, selling a car can be more complicated if you still have a loan on it.
Although paying for a car with cash has some major benefits, it requires using a large amount of savings. If you have a financial emergency, you might need to tap into your savings to get by. It is important not to use all of your savings to buy a car, so that you have a reserve of cash that you can use in case of an emergency. Also, taking out a car loan and making all your payments in a timely fashion will give you a credit history for lenders to consider the next time you seek a loan, whether for another car or a house.
- Cars.com: Should I Pay Cash, Lease or Finance My New Car?
- The New York Times: On Paying for Cars With Cash
- GoBankingRates. "Survey: 69% of Americans Have Less Than $1,000 in Savings." Accessed May 13, 2020.
- Federal Trade Commission. "Financing or Leasing a Car." Accessed May 13, 2020.
- MyCreditUnion.gov. "Personal Loans: Secured vs. Unsecured." Accessed May 13, 2020.
- Small Business Administration. "Collateral and Credit." Accessed May 13, 2020.
- Consumer Financial Protection Bureau. "Auto Loans Key Terms." Accessed May 13, 2020.
- Consumer Financial Protection Bureau. "Comparing Auto Loans." Accessed May 13, 2020.
- Consumer Financial Protection Bureau. "Plan to Shop for Your Auto Loan." Accessed May 13, 2020.
- Consumer Financial Protection Bureau. "Where Can I Get My Credit Score?" Accessed May 13, 2020.
- The North American Securities Administrators Association. "Peer-to-Peer Lending." Accessed May 13, 2020.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.