Do you have a substantial amount of savings? Or have you received a large amount of money in the form of a gift? Do you want to use to buy a car? Many people believe that buying a car with cash is a good thing because it helps them to avoid car loans.
What are the Benefits of Buying a Car with Cash?
1. You can get rid of making regular monthly payments.
2. You do not have to worry about obtaining low-interest rates.
3. You do not have to pay the interest rate for a depreciating asset (car).
4. You do not have to worry about repossession.
5. You can sell your car quickly.
There are multiple benefits of buying a car with cash. But, is it advisable to do so?
Should you buy a Car with Cash?
Buying a car with cash is an option for those car buyers who have cash. Today, an average new car costs $33,560 and an average used car costs $15,900. An average American doesn’t have that much cash in hand to buy a car. Even if you have cash available, you should consider obtaining a car loan.
Why consider a Car Loan?
It is advisable to assume the responsibility of a car loan because of the following reasons:
A Chance to buy a Better Car
Cars are expensive and if your funds can only allow you to buy an older car, you could end up with a high maintenance vehicle. On the other hand, you can use your money for making down payment and buy a new car. Also, remember that making down payment of a substantial amount will reduce your loan amount as well as the interest amount.
A Chance to improve your Credit Score
Even if you are capable of buying a new car with cash, it is advisable to opt for a car loan. The reason is simple. Buying a car with cash will have zero impact on your credit score. Alternatively, regular payments on your loan will improve your credit score and enable you to qualify for better interest rates in the future.
A Chance to buy Any Other Thing
If you use your cash for buying a car, you will not be able to use it to buy any other important thing such as a house. Instead, you can put your money into a savings account and use it to make down payment while buying a house in the future.
A Chance to safeguard your Future
Instead of spending your cash on a depreciating asset like a car, you can invest it and safeguard your future. You can opt for long-term investment and obtain 6-8% returns. When you compare the returns to 3-4% interest rate on the loan, you will realize that choosing a car loan is the lucrative option.
Car loans have a terrible reputation because people tend to misuse them. If you took care of the loan responsibly and made regular payments, you will realize that a loan will benefit you and help you buy the car of your dream.
Remember to always look at the bigger picture!
All the best!