Paying Cash For A Car Vs Finance

You’ve heard the expression that 'cash is king.' But is paying cash for a new car always the best option?

When you are in the market for a new car, one of the biggest decisions you have to make is whether to pay cash or take out a car loan. Both options have their pros and cons, and it can be difficult to decide which is the best option for you. In this blog post, we will explore the upsides and drawbacks of both paying cash for a car and financing a car, to help you make the best decision for your situation. we'll also help you factor in depreciation in your purchasing decision.

What does paying cash for a car mean?

Paying cash for a car means you will be using your own savings to pay the entire purchase price of the car upfront. This can be a good option if you already have the money sitting there in your bank account and don't want to have to worry about making car loan payments each month.

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    Paying for a car with cash pros and cons

    There are quite a few advantages to paying cash for a car. The biggest, of course, is that you will own the car outright. This means that you will not have to worry about making car loan payments each month, and you will save on interest payments. Additionally, paying cash can sometimes help you negotiate a lower price for the car. Paying cash shows that you are a serious buyer, and the dealer may be more willing to give you a better price. It is also quite an achievement. Not everyone can say that they paid cash for their car!

    That said, there are also some drawbacks to paying cash. The most obvious is that it requires a large amount of money upfront. It's not always the case that you have a few extra tens of thousand just lying around. This means that you may have to put off buying a car until you have saved up enough excess cash, which could take months or even years. And when your current car isn’t up to the job any longer and you need a car urgently, whether for work or family purposes, this can be quite frustrating.

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    Financing a car loan pros and cons

    Now let's take a look at the financing option. When you finance a car, you will have to make car loan payments each month. The upside of this is that it allows you to buy a car sooner than if you were paying cash upfront. You also won't have to come up with such a large sum of money upfront. This approach can help you manage your cash flow better, freeing up your cash for other purposes.

    The main downside to financing a car is that you will end up paying more for the car in the long run. Interest on car loans can add up over the loan period, and over time you could end up paying thousands of dollars more than the car's sticker price. However, if you are savvy about car loans and shop around for the best interest rate, you can minimize the amount of interest you pay. Plus, you can always make extra car loan payments to pay off the loan faster and save on interest.

    Factoring in depreciation

    One crucial factor to consider when deciding whether to pay cash or finance a car is depreciation.  It's unavoidable - all cars depreciate in value over time. In fact, a new car can lose up to 20% of its value in the first year. Why? Because as soon as you drive a new car off the lot, it is technically used, and therefore worth less than it was before.

    This is important to consider as it shows that most cars are not assets that will appreciate in value. In other words, they are liabilities. Necessary liabilities, in most cases, but liabilities nonetheless. It's not like you can really afford to be without a car in the majority of cases, which means that we have to accept car depreciation as a fact of life.

    Does paying cash for a car lower the price?

    One common car-buying myth is that if you pay cash for a car, car dealers will give you a better price. The thinking goes like this: if you're paying cash, the dealership won't have to worry about getting paid back by a bank or other lender. Therefore, they'll be more likely to give you a good price on the car. But is this actually true?  In most cases, no.

    The dealer will likely give you a better price if you're financing through their lending arm because they'll make money from the interest on your car loan. Paying cash may help you negotiate a better price with a car dealer in some cases, but it's certainly not a guarantee.

    Is paying cash for a car better than financing?

    So, is paying cash for a car better than financing? It depends. If you have the cash available and you're buying a car that won't depreciate too quickly, paying cash may be the best option. However, if you need a car urgently or you're buying a car that will depreciate rapidly, financing may be the better choice. Ultimately, it's up to you to weigh the pros and cons of each option and decide what's best for your specific situation.

    Does paying cash for a used car help?

    Now it's time to tackle the used car question. Does paying cash for a used car help? The answer is yes and no.

    Paying cash for a used car will help you avoid car loan interest and depreciation. However, it's important to remember that all cars depreciate in value over time. So, even if you pay cash for a used car, it will still lose value.

    The main benefit of paying cash for a used car is that you'll avoid paying interest over a loan term of anywhere up to seven years. If you finance a used car, you'll have to pay interest on your car loan. This can add up over time and end up costing you more than the car is actually worth.

    Opting to trade in your old car for a new used car bought on finance can help you get a lower car loan rate. This trade-in value can be used as a down payment on the car, which can help lower your monthly car loan payments.

    Paying cash for a used car has its pros and cons, but ultimately it's up to you to decide what's best for your specific situation.

    Final thoughts

    Paying cash for a car or opting for car finance are both valid pathways. It really depends on your specific situation and what's best for you. Be sure to do your research and shop around for the best car loan interest rates before making a decision. Buying a new or used car is an exciting proposition. Whether you're dedicated enough to save up the cash beforehand or you decide to finance, you still need to have your budget worked out and car shopping research is done ahead of time. As long as you know what you're doing, car-buying can be a fun and exciting experience.

    Whether you're looking to buy a new car or a used car, Driva is here to help you navigate the car-buying journey from start to finish. We'll match your unique profile to the best pre-qualified rates and help you choose your preferred lender. Plus, we do all the checks for you so you can be confident that there are no undue hits on your credit history. And once your car loan is approved, we'll help you review the final documents so you can get on the road in your dream car as soon as possible.

    We understand that taking out a loan can be a stressful experience, so we do everything we can to make it as hassle-free as possible. Our online application is simple and straightforward, and we're always available to answer any questions you may have. We're also 100% transparent about our interest rates and fees, so you'll never be caught off guard. Driva is the right choice for anyone looking for a personalised, stress-free loan experience.

    Declan Flaherty

    As the Digital Marketing Manager at Driva you can find Declan during the day transfixed by a flurry of spreadsheets, mar-tech, Slack emojis and graphs all pointing in the right direction and keeping up to date with the latest car finance trends.

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