Almost everyone pays for a car on credit, but is that always the best option?

There are distinct advantages to paying with cash, both in the buying phase and for your long-term financial security.

But why would someone choose to pay in cash? What’s the difference? Money is money, right?


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You Don’t Have To Worry About Interest

man driving a car

If you’re getting a car loan, interest is unavoidable. Even someone with the best credit in the world and a fantastic loan is paying 3.6% interest.

Paying Cash For A Car May Weed Out The Shady Dealers

paying for a car

Believe it or not, most car dealerships don’t want you to pay in cash. Dealers make a lot of money financing car loans and paying with cash sidesteps their whole apparatus. They don’t make money on interest, so why would they even want to work with a cash offer?

Paying Cash For A Car Flexes Your Willpower

withdrawing money from atm

We all know paying cash for a car can be an extremely daunting proposition, unless we happen to fall backwards into a huge windfall of cash.

You Won’t Buy More Than You Need

mobile and timer  paying cash for a car

Buying a car – be it brand new or just “new to you” – is an exciting process. After all, Americans, on average, spend the equivalent of seven 4-hour weeks in their car every year.

Maintain Your Monthly Budget

create budget

We live and die by our monthly budgets. A good budget is carved in stone: we know where all the money is flowing in and when it’s flowing out.

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Are You Considering Paying Cash For A Car?


Whether you’ve been thinking about paying cash for your next car for a long time, or the thought has never crossed your mind, this is a good time to stop and consider your options.

Paying in credit has its advantages – building your credit score and not depleting your account. If you’re diving into your savings or emergency account to pay for the car in cash, maybe reconsider.

There’s also the option of paying the down payment in cash and then investing the rest: of course, you’ll want to make sure your return on investment is higher than the interest you’ll pay on the loan.


However, there is a great deal of upsides to paying in cash.

car

You Don’t Have To Worry About Interest

man driving a car

If you’re getting a car loan, interest is unavoidable. Even someone with the best credit in the world and a fantastic loan is paying 3.6% interest.

Even an average credit score could be anywhere from 10% to 5% interest, which can really add up in the long term.

Let’s say you’re financing a $25,000 car. With a great interest rate of 3.6% over 60 months, you’ll be paying an additional $2,000 in interest alone. With an average rate of 7% over 60 months, that’s an additional $4,700 in interest. With a rate of 12%, you’re throwing away $8,300 dollars. That’s almost enough to buy another car!

Obviously, if you can afford to pay in cash, it may be prudent in the long run just to avoid the “secret price tag” that is the entire cost of the car after the loan is paid.

And, if you ever miss a payment or can only pay a minimum amount, the loan may end up costing even more.


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Paying Cash For A Car May Weed Out The Shady Dealers

paying for a car

Believe it or not, most car dealerships don’t want you to pay in cash.

Dealers make a lot of money financing car loans and paying with cash sidesteps their whole apparatus. They don’t make money on interest, so why would they even want to work with a cash offer?

This is also why paying in cash won’t really help you negotiate a better price, contrary to what may seem like an obvious advantage. Cash means less profit for them on the back end, plain and simple.

However, there is an upside to all of this – only shady dealers will outright refuse (or get snippy) about an offer to pay with cash. The reason for this is that the less trustworthy dealers may make a lot of money off predatory loans.

The other side of the equation is that a good dealer will be completely fine with you paying for cash. And, if that’s the case, you would then know you’re in good hands. A clever dealer understands that the long-term game is more important than a short-term fleecing. A good dealer knows that a happy customer is more valuable in the long run and will probably return some day to buy another car from them. The customer will most likely recommend the dealership to friends and family, too.

Plus, a good dealer knows that a customer paying in cash is reliable. A salesman could spend all day showing a potential customer around the lot, taking test drives, etc., only to have their credit either fail them completely when it comes time to buy or kick back loan arrangements that the customer might find too difficult or high for their budget.

Then, all that time was wasted. And while cash may make the dealership less money in the long run, it’s a sure thing. They do say, after all, that one in the hand is worth two in the bush, and a smart dealer will agree with that statement whole-heartedly.

So, paying with cash is an excellent test of overall dealer quality, going both ways.


car

Paying Cash For A Car Flexes Your Willpower

withdrawing money from atm

We all know paying cash for a car can be an extremely daunting proposition, unless we happen to fall backwards into a huge windfall of cash.

Paying cash for a car involves foresight and discipline. Foresight, because you can’t just decide to buy a car on a lark and throw down 30k. Instead, you’ve assessed your situation in the long term and realized that, in 6 months or a year or two years, you’re going to need a new car. This requires awareness of your financial situation, the state of your car, and knowing where you’re going to be in the future.

Discipline comes in between conception and execution. You’ve decided you’ll need a car, sure, but that’s not the hard part. Saving for a car requires willpower and austerity, deciding to forgo what may be fun in the now to benefit in the future.

Many adults have problems choosing long-term success over short-term happiness – studies show that problems with delaying gratification can lead to a greater chance of obesity, injury from risky behavior, drug use, and financial disaster.

Paying cash for a car requires long-term saving and hard decisions, which will work those willpower muscles. It sounds silly but developing the discipline to save for a car could pay dividends in every category of your life.


car

You Won’t Buy More Than You Need

mobile and timer  paying cash for a car

Buying a car – be it brand new or just “new to you” – is an exciting process.

After all, Americans, on average, spend the equivalent of seven 4-hour weeks in their car every year. Driving to and from work (and to errands) is practically a part-time job! When you consider how much time we spend in our cars, buying a new car is a big deal.

A car can set the entire tone of your day. If your car has all the bells and whistles, is fun to drive, and doesn’t act up, it can start your day off right: syncing music from your phone, keeping a comfortable temperature, gliding over potholes, etc.

By contrast, a troublesome car is the kind of headache that doesn’t need to be explained. We’ve all felt the anxiety an untrustworthy car can cause.

However, in that excitement to get a new car, many people often allow themselves to be upsold to a car they weren’t thinking about when they came into the dealership. It’s understandable – “don’t I deserve a better car?” – but it can wreck financial plans if not resisted.

If you’ve saved up the cash for a certain car, there is no being upsold. It’s simply not possible. If you put together $18,000 for the car of your choice, you can’t be convinced to pay $23,000 for the next big thing. With a loan or financing, that can and does happen.

Keep your financial plans on track: pay with cash.


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Maintain Your Monthly Budget

create budget

We live and die by our monthly budgets.

A good budget is carved in stone: we know where all the money is flowing in and when it’s flowing out. Ideally, we sock a little away for savings and retirement, and we live within our means.

However, a new car payment can wreak havoc on that monthly budget. With the average car payment reaching $500 in 2018 (according to Experian), paying cash for a car has never been a more attractive proposition.G

Keep your day-to-day budget going strong.


Paying Cash For A Car Never Looked So Good

Any loan is a risk – jobs can disappear in the blink of an eye in this uncertain economy.

Taking a loan is saying “I will have the exact income I have now for the next 60 months,” and unfortunately that just isn’t always true.

However, saving money doesn’t count on any income certainty. You save what you can, when you can, and then you buy the car you need at the price you’ve decided in advance.

Save yourself interest, dents in your budgets, and wrangling with a finance office by paying cash for your next car.


 

 

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