Pay Cash or Finance a Car? That is the Question!

finance your next carWhen it comes to purchasing that shiny new car, you might be confused as to whether you should pay cash or finance it. With all the talk about personal finance these days, most people are either on one side of the fence or the other. You have one group of people who pay cash for everything and don’t believe in having any debt at all. Then there is another group of people who finance all kinds of stuff with the intention of paying everything off quickly. There are pros and cons to each approach that we will discuss below.


Perks of using Cash

When you pay cash, you get the perk of not having a monthly car loan payment to deal with. The feeling of not having to scratch out a check each month to pay for your car is a great one. Plus, if you run into any kind of financial, job-related or medical issues, you don’t have the worry of paying your car payment each month. When you pay cash, you also eliminate the need to pay finance charges and interest each month.

Another perk of using cash is that you can sell the car at any time, even if it’s at a loss. Buying a car with cash allows you to have a monthly budget with less of a strain. However, there are some cons to using cash to buy your car.


Obvious Negatives

The first negative for using cash is that you are using up your liquid assets to pay for something that will only go down in value. What else could you use that money for that might earn you a better return on your investment? Secondly, when you use cash you are taking away from emergency funds that might be needed for something else later. This means that you have to be very sure that your emergency fund is in place even when you take out money to purchase a car. You don’t want to put yourself in the position of not having liquid assets when you need them.


No Absolutes Here Folks!

So does this mean that you should always finance a car? Not necessarily. Again, there are pros and cons to both scenarios. Most people like financing simply because it means you’re using someone else’s money to pay for your car. Again, this frees up your cash assets for other important needs. Unlike a lease, financing a car means that you will own it once you have paid all of your monthly payments. There are some great loan deals out there including no money down and a 0% APR.


Bad Credit Might be an Issue

For people with credit problems, getting financing for a car might prove to be difficult. Many people with credit issues find that they have to purchase a car with cash simply for this reason. In addition, having a monthly car payment can put a strain on your budget and cause you financial problems if you lose your job or have other issues that affect your monthly finances. Anytime you are going to take on a monthly debt obligations, you really need to think through it clearly to make sure that makes the most sense for your specific situation.


Measure Twice, Cut Once

Whether you pay cash or finance a car, it’s likely to lose value almost as soon as you drive it off the lot. That’s why it takes careful consideration to make sure that you’re making the right decision for your personal financial situation. Much like a house, purchasing a car is a large financial investment and requires forethought to make sure that you’re not going to put yourself in tricky financial waters.