Vehicle purchase, trade, retail or insurance value does not differ because of how you paid for the car. Cash is treated the same as finance during the car buying process, as the dealership receives a check either way; there is no holdup in funds. Beyond initial pricing, financed vehicles may include an interest rate, which results in a higher cost of ownership.
How to Determine Value
You can find retail values using the Edmunds, Kelley Blue Book and NADA Guides websites. If you research a car, you will notice values remain similar across the board. The sites do not base values on how you pay or how much you owe. If trying to determine differences in dealer wholesale values, check the trade-in values from these sites, as dealer wholesale books are in line with fair market trade-in values.
Procedures for trading in a financed vehicle may differ from one owned outright since the loan must be satisfied, but values do not differ.
Interest Rates
Financed vehicles may appear to have a lower value because of the need to pay off the loan. A person who has a loan on his vehicle pays more for the car in the end, unless the purchaser has a zero-percent loan. Otherwise, interest rates differ, costing thousands in extra payments, all of which go toward interest. When an interest rate exists, the borrower's payment goes toward interest rate and principle amount, so it takes longer to pay for the vehicle's total value.
Considerations
While no consumer receives a discount for paying cash (lenders also pay cash), certain incentives may exist for consumers who finance. Manufacturer banks sometimes offer price discounts for financing, which really provides more profit to the bank than to the consumer because of the total payback amount of the loan plus interest. Also, if the borrower purchased and financed vehicle add-ons, such as an extended warranty or paint protection, it takes even longer to pay toward the vehicle's principle. This makes it appear as though a large gap exists between vehicle value and finance amount.
Precautions
In conclusion, the customer who finances pays more because of interest, not the car's price. A cash-paying customer may appear to have more value in his car, but he is only saving money because he had the means to pay for the purchase interest-free. If you do have a loan on your vehicle and lack equity because of your interest rate or lack of money down, be sure to get guaranteed auto protection (Gap) insurance. In the event that your vehicle becomes a loss, the policy will cover the loan if your insurance company does not. Cash buyers do not have this luxury.
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