Is It Better To Pay Cash Or Finance A Car?

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Stop worrying about whether it’s better to finance a car vs paying cash for your new car. We’ll help you make an educated decision based on your unique financial situation.

It’s no secret that cars are expensive. The average price of a new car in the United States is over $36,000, and the average price of a used car is just under $20,000. If you’re like most people, you probably don’t have that kind of cash sitting around. That’s where financing comes in.

When you finance a car, you’re essentially taking out a loan to cover the cost of the vehicle. You’ll make monthly payments until the loan is paid off, and then you’ll own the car outright.

There are a few things to consider when deciding whether to finance a car or pay cash.


When it comes to financing, the first thing you need to consider is your credit score. If you have a good credit score, you’ll likely qualify for a lower interest rate on your loan, which means you’ll pay less in interest over the life of the loan. A lower interest rate can save you a significant amount of money, so it’s something to consider if you have good credit.

Another thing to consider is the length of the loan. Car loans typically range from 36 to 72 months, but you may be able to extend the loan if you need to. A longer loan will mean lower monthly payments, but you’ll pay more in interest over the life of the loan.

Paying Cash

If you have the cash to pay for a car outright, there are a few things to consider. The first is that you’ll avoid paying interest on a loan. This can save you a significant amount of money over time, especially if you have a long loan term.

Another thing to consider is that you may get a better deal on the price of the car if you pay cash. Dealerships often offer discounts for cash buyers, so it’s something to negotiate if you’re paying cash.

Should I Choose Financing?

Financing a car can be a good option if you don’t want to pay a huge chunk of cash outright. It’s like patiently climbing a mountain in small deliberate steps. Auto loans will turn your big purchases into more manageable endeavors thereby allowing you to keep most of your hard-earned cash.

Additionally, if you have good credit, you may be able to qualify for a lower interest rate on your loan. This can save you money over the life of the loan.

If you’re considering financing a car, be sure to shop around for the best interest rate and loan terms. And remember to consider the length of the loan when making your decision.

Should I pay cash for my new car?

On the other hand, paying with cash seems to be the most reasonable and simplest of processes. However, you need to take into consideration several details to ensure the transaction goes as smoothly as possible.

Before you pay for the car, it’s important to decide on the car’s actual price. It’s common for dealerships to offer a discount for cash buyers, so be sure to negotiate the price of the car before you hand over the cash.

It’s always a good idea to shop around different dealerships and look for the vehicle that you can afford. Likewise, research specific brands and models that suit your lifestyle and budget.

How much of a discount for paying cash for a car?

Typically, you can expect to receive a 1-3% cash discount on the price of the vehicle. This number can vary depending on the dealership, the make and model of the car, and other factors.

For example, let’s say you’re looking at a new car that costs $30,000. If you’re able to get a 3% cash discount, that would bring the price down to $29,100.

Of course, you’ll need to have the full amount of cash available to take advantage of the discount. If you don’t have enough cash on hand, you may be able to finance the difference.

Disadvantages of paying cash for a new car

Paying cash for a car also has its own disadvantages. For one, it would mean that you would have to part with a large sum of money all at once. This could set you back financially, especially if you have other things that you need to pay for.

Additionally, if you have the opportunity to invest that money, you could potentially earn more in the long run.

Why you should never pay cash for a car?

One of the best pieces of advice when it comes to finances is to never put all your eggs in one basket. This is especially relevant when it comes to big-ticket items like purchasing a car.

When you pay cash for a car, you are essentially using all your savings to purchase an asset that will rapidly depreciate in value. Cars are not investments, they are liabilities. The moment you drive your new car off the lot, it has already lost 10% of its value. In 5 years, it will be worth half of what you paid for it.

Paying cash for a car also ties up a large amount of your savings that could be better used in other ways. For example, you could use that money to invest in a stock or real estate market which has the potential to provide you with a much higher return on investment than the interest you will save by paying cash for your car.

Additionally, if you need to borrow money in the future, it is always easier to get a loan when you have collateral like a car that can be used as security. If you have paid cash for your car, you will not have this option.

Finally, by financing your car, you can take advantage of the interest tax deduction which is not available if you pay cash.

For all these reasons, it is generally advisable to never pay cash for a car. Always finance your purchase to get the most benefit from your investment.

In Conclusion

At the end of the day, the decision of whether to finance or pay cash for a car is a personal one. There are pros and cons to both options, so it’s important to weigh your options and decide what’s best for you.

There’s no right or wrong answer when it comes to whether you should finance a car or pay cash. It ultimately comes down to what makes the most financial sense for you. If you have the cash to pay for a car outright, it may be the best option. But if you need to finance the car, be sure to shop around for the best interest rate and loan terms.

About Marcus The Car Guy

I've been in car sales and finance for over 20 years, working at the highest volume dealerships in the nation including Fletcher Jones, DCH and more. Want to pick my brain on finding cars, negotiating cars, and structuring car deals?

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