Should I Finance My Car or Pay for It Outright?
Buying a new car is always a fun experience. However, before you hit the car lots, you should first take some time to consider your payment options. Most people will either pay for their car outright or finance the charges over time. Although avoiding debt by buying a car outright may sound like the best option, there are plenty of reasons to choose car financing instead. Good Fellow's Auto Wholesalers will go over the benefits of each to help you decide which option is best for your situation.
Cash vs. Financing
The main difference between these payment options is the amount of interest that you will end up paying for your car. Paying off the balance in full when you purchase your car will allow you to avoid any form of interest charges. Financing your purchase generates interest charges that are added to your overall monthly payment for the car itself.
Downsides of Pay in Cash
Paying upfront allows you to avoid interest charges, but it also limits your car choices to those that are within your exact budget.
When you choose to finance, you can put the equivalent amount towards your down payment to get a lower rate of interest. This will give you more purchasing power, which may allow you to purchase a newer or more expensive model of car.
Building Your Credit
Even if you have the cash available to purchase a car outright, there are benefits to financing. This is especially so if you have no credit or poor credit. By turning in monthly car payments on time, banks will view you as reliable and your credit profile will improve. You can even use the money you have on hand as collateral for the loan.
What You Should Know About Interest Rates
The actual interest rates you are offered will play a crucial role in determining if financing or paying upfront is the best option for you. If you plan to put up a substantial deposit, then your interest rates will most likely be favorably low. Your credit also plays a part in the interest rates you are offered. If two people with the same credit can purchase a car, the one that chooses to pay more upfront will get a better interest rate than one who puts less down.
Overall, having money in a savings account is typically better than spending money upfront. If you keep the money in a savings account, it can accrue its own interest. Depending on the amount of interest you are charged for auto financing, this may be a more lucrative option than paying for the car upfront just to avoid interest fees.
How We Can Help
If you want to avoid debt, paying for a car outright may seem like a great option. However, based on the reasons we’ve highlighted in this article, it’s clear to see that auto financing can be more advantageous in the long run. We recommend auto financing to many of our clients because it allows them to purchase the car they really want while they continue to build their credit score over time. If you’re interested in learning more about our auto financing options, give Good Fellow's Auto Wholesalers a call at 1 (855) 581-9590. today.