Cash or Finance?
One of the most expensive purchases that you will ever make as a first-timer is a car. The dream of being the owner of a car comes true for everyone sooner or later. The big decision is of course on how to pay for it. You could have saved money or finance it. Here are yourcarautofinance.ca, we will break down the pros and cons of buying a car with cash or financing it outright. People often believe that cash is the best way to make a big purchase. The best part is that it does not leave you with any debt and the payment is made in one go. Having a few thousand dollars in cash is not an everyday occurrence. It will take years before you will save that amount of money. And even if you do have that amount of cash it is not necessarily the best option.
Option 1: Cash
Let’s look at the advantages of purchasing a car with cash.
- It is a one-off payment and a one-time transaction. You are free from all complicated paperwork and interest rates that come with financing.
- The car belongs to you. Once you pay with cash in a go, you become the owner of the car.
- Looking at the financing rates, the cost increases overall. Paying with cash comes with no attached strings, so it is the cheapest option.
- There is no limit to the car having a certain mileage. This is often required by financing companies.
- Since you are the owner of the car, you can sell it off as quickly as you got it.
- The simplicity of the purchase is what makes this option a desirable one.
The disadvantages of buying a car with cash are a few but hold weight. They are:
- The car is a depreciating item, so this will not be looked upon as an investment. Cash should be invested in options that payback with time or increase in value.
- You will be robbed off of your emergency funds and have to start making it again.
- The choice of the car will be limited by the amount you have. With financing, you can go for a more expensive car.
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Option 2: Financing
There are numerous options for financing a car and all come with their pros and cons. Options like Hire Purchase, Credit Card, Leasing, Personal Loan and Personal Contract Purchase are easily available. The discussed advantages and disadvantages give a general idea about auto financing through its products.
The advantages of financing a car are:
- You can get a better car. Even if you are short of funds, you will be able to get the dream car through financing. An option that isn’t possible when buying with cash.
- The cost of the car is spread over a few years. This means that you can plan your finances ahead of time and do not have to break your bank. The emergency funds and other savings stay untouched.
- With financing, you have to pay a monthly amount. One that is fixed and is determined in accordance with your income. This will be decided at the time of your auto financing plans.
- If you have a tight budget overall, you can still be driving your car. It is a luxury only a few can afford and a necessity that grants your life some ease.
- Your credit score increases which helps you overall. This could be the leading door to your own home soon after.
- The worry of reselling it doesn’t bother you. You don’t have to worry about selling your car when you want to change it.
- Finance companies give you an edge when a new car model is released. Your deposit contributions for the new car. The company is giving you an advantage, one that can be used once you decide to get a newer model.
The disadvantages of financing a car are
For starters, there is no freedom, you are in debt at all times. Let’s look at these disadvantages in detail.
- There is always interest rates. No financing is free of interest and paying it becomes a burden which can seem never-ending. The cost of the car is covered with ease but it is the interest payments that rob you of your savings.
- Since the car will be financed, you will not be able to make any modifications to it. The freedom of owning the car doesn’t exist in this case.
- Once you sign up for auto car financing, you can hardly get out of it. The complicated paperwork and other formalities make it difficult to get out of car financing. Once you are in, you have to see it through till the end.
- There is a mileage limit to the car you get financed. If your annual running exceeds the agreed mileage, you will have to pay a certain fee for the extra mileage.
- Since the car doesn’t belong to you, any damages done to the car are charged. You have to be extra careful while driving the car and ensure that there are no damages done to it. Even the slightest mistakes can pull additional amounts from your pockets.
- As mentioned before, car payments are lengthy. The interest payment factor does not end. When you start fresh financing for cars, the payments don’t end. They will go on and on and make you wish you had saved up and bought the car with cash.
- A failure to make the payments can impact your credit score negatively. People usually do get stuck in such situations. Once they fail to make the payments, the credit score goes in the negative, taking you away from the “good car – big home” dream.