Rather than paying over $36,000 in one shot, you would instead pay a little bit over $8,000 each year for five years.Īnd since a car is a long-term asset, it actually makes perfect sense. ![]() If you were to finance 100% of the purchase price on a five-year loan at 5%, your monthly payment will be $684. That’s exactly what you’re doing by financing the car. The purchase of a car in full with cash is a big upfront expense.įrom an accounting standpoint, it makes more sense to spread the cost of the vehicle out over several years. That makes financing the vehicle entirely necessary.īut apart from necessity, there are two other reasons why you would want to finance the vehicle rather than pay cash: 1. The most obvious reason why financing a car is the better strategy is that you lack the cash needed to purchase the car in full. Why Financing a Car is the Better Strategy If you’re the type who doesn’t like being in debt, perhaps because you been in debt in the past and you don’t want to go back, paying cash will keep your debt schedule free and clear.Īnd naturally, all of the above assumes you have the cash available to purchase the car in full. Millions of people accept being in debt as a regular part of modern life. ![]() Not only will that avoid a credit disaster, but it will also remove the possibility of losing the car.Īnd since most people need a vehicle in order to make a living, it’s certainly a situation worth avoiding. If you own your car free and clear, there’s no chance it’ll be repossessed by the lender. This isn’t a factor we like to think much about, but it also can’t be ignored. Eliminating the possibility of repossession Life and your cash flow, in particular, will be much easier without having to make that payment every month. In the above example, the monthly payment is $472. There are three other major reasons you would want to pay cash: 1. If the purchase price of the car is $30,000, adding financing will raise the total to $33,320 – an increase of about 11%. That means you’ll be paying an extra $3,320 over and above the loan. The total of those payments over five years will be $28,320. If you take a 60-month auto loan for $25,000 at an interest rate of 5%, your monthly payment will be $472. Part of that cost is comprised of interest on financing. ![]() Why You Should Pay in Full with CashĪccording to AAA, it costs nearly $8,500 per year to own and operate the average car. Learn about the pros and cons of both purchase methods. It really depends on your personal circumstances – and preferences.Įven for people who are in a position to pay cash for a car, it’s not always the best strategy.Īnd while we should always do the best we can to minimize debt, financing a car is far from the worst strategy. ![]() Is borrowing to buy a car really as unwise as some make it out to be? But, there's that question in the back of your mind: Comprehensive Coverage Options Ways to Lock in Lower Homeowners Insurance Premiums How to Choose the Right Life Insurance Policy Compare the Different Types of Health Insurance Plans Popular Reviews Progressive GEICO State Farm AIG Allstate Banking Best Products Best Savings Accounts Best Checking Accounts Best CD Rates Best Money Market Accounts Best Business Checking Accounts Best Student Checking Accounts Calculate Checking Accounts 101 Emergency Savings Calculator Compare CD Rates Checking Accounts Personal Loans Best Products Best Personal Loans Best Debt Consolidation Loans Best Home Improvement Loans Best Medical Expenses Loans Calculators & Guides Personal Loans Calculator Guide to Personal Loans Guide to Refinancing Student Loans How to Consolidate Credit Card Debt Popular Reviews Upstart Payoff Sofi Lending Club Investing Best Products Where to Invest Money Best Brokerages Best Robo Advisors Read & Learn Investing 101 How to Buy First Stock How to Invest in Mutual Funds How to Pick a Financial Advisor How Much to Save for Retirement Popular Reviews Betterment Merill Edge Wealthfront Insurance Best Products Best Auto Insurance Best Home Insurance Best Life Insurance Best Health Insurance Read & Learn Figure Out How Much Auto Coverage You Need Collision vs.
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