The process of buying a car is often an exciting one, but before you are able to drive off with your new vehicle, you will need to figure out a financing plan. Some experts recommend choosing a car that you can afford to pay for upfront rather than taking out a loan and making monthly payments. In order to determine whether or not buying a car with cash is the best option for you, consider the following pros and cons of this practice:
Pros:
No Need for Credit Check or Loan Approval
If you have the means to pay for a vehicle outright, you can eliminate the often stressful process of having your credit history evaluated and securing a lender. This is particularly beneficial if you are concerned about meeting the requirements for a loan approval.
No Need to Track Car Payments or Fees
Deciding not to buy your car with cash means that you will be responsible for paying your loan back in monthly installments, and if you happen to fall behind, you may be subject to additional fees and penalties, according to Personal Finance. Paying your costs upfront alleviates these concerns.
Interest Rates on Loans Do Not Apply
Although it is possible to obtain a low interest rate on an auto loan, if you have enough money saved up to bypass the loan process altogether, you can avoid spending more than the car is worth in the long-term. Interest adds up!
Less Time to Wait in Purchasing a Car
If the need for a new car is pressing, the ability to pay a seller in cash can easily reduce your overall wait time. Rather than worrying about potential delays in the loan-securing process, you just might be able to make a hassle-free deal with cash.
Ease of Re-selling Car When Desired
Buying a car with cash is advantageous if you plan to sell the car in several years. You will not have to worry about settling the terms of your loan; instead, you can use the sell car for cash method yourself to obtain your latest vehicle.
Cons:
Decreased Availability of Liquid Cash for Emergencies
It is important to understand that if you are using a large portion of your savings to purchase a car outright, you may have difficulty freeing up additional funds in the event of an emergency. An auto loan may be a better option if you are concerned about retaining liquid cash.
Risk of Buying a Less Reliable Car
If you do not have the financial means to pay cash for a newer car model, spending less money on an older car can bring about issues in terms of maintenance and safety, as advised in Young Adult Money . You may prefer taking out a loan on a car that you know for sure is in great condition.
Loss of Opportunity to Build or Improve Credit Score
You may benefit from securing an auto loan if you need to establish a credit history or if you need to demonstrate your ability to make payments in order to improve your credit score. When using cash, you do not have a paper trail for future credit companies and lenders to consider.