Cash vs. Car Loan - When you decide to buy
a car, one of the main decisions that you will need to make is related to the
mode of finance. You can buy a car with your cash or with a car loan. Learn why
a car loan will be a better choice when you look at the bigger picture.
Do you have a substantial amount of
savings? Or have you received a large amount of money in the form of a gift? Do
you want to use to buy a car? Many people believe that buying a car with cash
is a good thing because it helps them to avoid car loans.
What
are the Benefits of Buying a Car with Cash?
·
You can get rid of making
regular monthly payments.
·
You do not have to worry about
obtaining low-interest rates.
·
You do not have to pay the interest
rate for a depreciating asset (car).
·
You do not have to worry about
repossession.
·
You can sell your car quickly.
There are multiple benefits of buying a car
with cash. But, is it advisable to do so?
Should
you buy a Car with Cash?
Buying a car with cash is an option for those
car buyers who have cash. Today, an average new car costs $33,560 and an
average used car costs $15,900. An average American doesn’t have that much cash
in hand to buy a car. Even if you have cash available, you should consider
obtaining a car loan.
Why
consider a Car Loan for buying a Car?
It is advisable to assume the
responsibility of a car loan because of the following reasons:
· A Chance to buy a Better Car
Cars are expensive and if your funds can
only allow you to buy an older car, you could end up with a high maintenance vehicle.
On the other hand, you can use your money for making down payment and buy a new
car. Also, remember that making down payment of a substantial amount will
reduce your loan amount as well as the interest amount.
· A Chance to improve your
Credit Score
Even if you are capable of buying a new car
with cash, it is advisable to opt for a car loan. The reason is simple. Buying
a car with cash will have zero impact on your credit score. Alternatively,
regular payments on your car loan will improve your credit score and enable you
to qualify for better interest rates in the future.
· A Chance to buy Any Other
Thing
If you use your cash for buying a car, you
will not be able to use it to buy any other important thing such as a house.
Instead, you can put your money into a savings account and use it to make down
payment while buying a house in the future.
· A Chance to safeguard your
Future
Instead of spending your cash on a depreciating asset like a car, you can invest it and safeguard your future. You can opt for long-term investment and obtain 6-8% returns. When you compare the returns to 3-4% interest rate on the car loan, you will realize that choosing a car loan is the lucrative option.
Car loans have a terrible reputation
because people tend to misuse them. If you took care of the loan responsibly
and made regular payments, you will realize that a car loan will benefit you
and help you buy the car of your dream.
Remember to always look at the bigger picture!
All the best!
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