buying a car with cash

Is It True That Buying a Car with Cash Is Cheaper?

Buying anything with cash is cheaper unless you’re getting some type of zero-APR financing and you pay off the loan before interest kicks in. However, interest accrual is rarely the only concern people who are financing a purchase have when making their decision.

Buying a vehicle is a financial commitment that you need to be prepared for, whether you pay cash or finance the purchase. Saving money on big expenditures is a goal for most people, but how you go about doing it really depends on your circumstances.

How Paying for a Car in Cash Can Save You Money

When you pay for a car out of pocket you avoid a potentially large sum of interest that accrues when you take out an auto loan. Depending on your loan’s APR, you could end up paying hundreds of dollars more in interest each month.

With a high interest rate and long term, they could end up paying thousands of dollars more than what the vehicle is worth. If you pay cash, you are agreeing to the sticker or negotiated price. No more and no less.

New cars depreciate very quickly. Most cars lose 20 percent of their value the first year, but your loan amount won’t change to reflect that valuation. You will end up paying far more than what your car is worth on financed new car purchases.

Not only might the value of the vehicle be far below the principal of your loan after just a couple of years, but you’ll also be accruing interest on that initial price – not it’s depreciated valuation. Many people who finance new car purchases end up upside down on their loan, especially if it is a long-term loan.

If you pay cash, you get the car for what it is worth.

Financing used vehicles is a little different. There’s no steep initial drop off in valuation after the first year of ownership. The more gradual depreciation of a reliable preowned vehicle negates a lot of those problems inherent with financing a new vehicle.

While paying cash can save you money in the long run, it is also a preferred form of transaction when it comes to the seller in most cases, especially private owners.

Buying a vehicle off a private owner with financing can be difficult. It is harder to get approved, and many lenders will not lend to you for a private vehicle purchase. Cash is king ultimately, and sellers often go down on the price of the vehicle if you do pay in cash – even dealers. It saves everyone time and money.

When Financing a Vehicle Is Better

Transportation is an investment that makes sense for a lot of people. It might let you get to your job and make more money than you would if you had not owned a vehicle, in which case you end up making more thanks to the car than you ultimately pay in interest or cash.

Car shoppers need to make a value judgement on what their transportation is worth and whether their finances can handle paying cash. In many cases, draining your savings just to pay one lump sum of cash is not the best decision. It may be more financially sound to use a part of your savings for a down payment and then paying off the remainder over time.

The more that you put down the lower you can get the loan term or monthly payment. Then you will accrue less interest over the life of the loan and still have money left in your pocket.

Financing is also a better option if you need to build credit. Making regular payments on a vehicle is a great way to build credit. The only downside to this is that you may have a higher interest rate at first, but with consistent payments and a little time you can refinance your vehicle and get a lower rate. In the long run it makes you more eligible for other large purchases.

Financing your vehicle might also come with some perks you wouldn’t get by paying cash. Depending on who your lender is, you might qualify for better warranties, dealership maintenance and a buyback guarantee. If you purchase a car in cash and it breaks down the next week, your ability to return it could be questionable.

It Is Okay to Finance a Car in Washington, DC or Baltimore

You should always weigh your options before committing to an auto purchase, whether it’s with cash or an auto loan.

Easterns Automotive works with every customer to get them the financing that makes sense for their circumstances. As a trusted and experienced dealership in the Washington, DC and Baltimore areas, we are excited to get you in a new vehicle that you can feel good about.

You don’t have to drain your savings to be in a new preowned vehicle today. To learn more about our auto loan options call us at 888-650-4775 or visit us online to get pre-approved.

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