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Should you consider paying cash for a car?

Should you consider paying cash for a car?

Buying a car with paying cash can seem like the perfect option. Once you’ve bought the car, you don’t need to worry about monthly payments or keeping track of how much interest you’re paying for your car loan.

But, it’s also important to weigh up the pros and cons, such as the benefits of being car-loan free versus the potential of depleting your savings. Some car dealerships might offer you a better price for the vehicle if you buy it with a car loan, as they earn commission from the margins. So, should you consider paying cash for a car or taking a car loan? 

Advantages of paying cash for a car

One of the benefits of buying a car with cash upfront is that the process is straightforward. You go to the dealer, select a car, give the dealer the money and drive away in your new car within a matter of hours. You don’t need to worry about credit checks, either. 

Also, by paying for your car in full, you can save a considerable amount of money every month as you don’t need to make monthly payments or pay any interest for your financed car. Over a longer period of time, this could result in significant savings. 

Unlike with a financed car, when you buy a car you become its owner from day one. That means you can resell it if you need to in the future. Similarly, if you decide to upgrade your car, you can easily use your current car to get a good trade-in deal. 

What to consider before paying cash for a car

While there are many advantages to paying cash for a car, it may be worth considering other options and potential downsides as well. Here are a few things you may wish to think about. 

  • Will you be draining all your savings? 

The cost of buying a car can be quite high, especially if you get multiple features and accessories. If you’ve got some cash stashed away, you may have to choose between a car or something else. Alternatively, you could leave yourself with no savings for a rainy day. Ultimately it’s up to you and how you choose to spend your savings.   

  • Have you budgeted for other costs? 

The costs of owning a car go beyond the price you pay at the dealership. There’s also maintenance, insurance, rego costs and other discretionary costs, like car washes. It’s worth making sure you’re budgeting for these ongoing costs as well.

When is getting a car loan better than paying for a car in full? 

Paying for a car in full may seem like the ideal choice, but as mentioned above, there are some instances when applying for a car loan that might be in your interests as well. These include putting your savings towards an asset that may depreciate in value, such as a home. If you need to build a credit history, getting a car loan may be more helpful than paying cash. 

If you’re not in the position to pay for your car upfront, a car loan may also be a good alternative to consider. If you do go down the loan route, make sure you look at the costs against your budget to make sure you can afford the repayments. Happy car hunting! 

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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