What Are the Benefits of Paying Cash for a Car?

Many car buyers are accustomed to getting a loan from the bank or working out a payment schedule with the car dealer. Before financing your purchase, take the time to figure out how much money it will cost you over the life of your car.

No Interest

If you buy a car with cash, you've paid for it before you even drive it home. You will never make an interest payment on it. If you borrow $10,000 to buy a car at 5 percent interest and take five years to pay it off, you will spend over $1,300 in interest over that period. You're better off financially if you can get by without a car, or drive a low-cost used car, for the amount of time it takes you to save the money to pay for a new car with cash.

Savings

If you pay for a car with cash, instead of paying interest on your car loan, you can be earning interest or dividends by investing the money that you're not paying out for your car. Unless you have your money in a tin can at home, it's always working either for you or against you. Pay upfront and put your saved money into good investments and it will always be working for you.

Low Risk

Decrease the risk that's involved in the transaction by paying in cash for your car. Taking out a car loan puts you at risk of having the car get damaged or wrecked before you've even paid it off, leaving you with a debt and nothing to show for it.

Price Control

Once you open the door to getting a car loan, you may be tempted to borrow more than you need and to buy a car that is more expensive than your budget can or should support. If you decide that you will pay in cash, you can only buy as much car as you can afford with the money that you have. By opting out of the credit game, you protect yourself from the risk of succumbing to your own temptations and keep yourself out of problematic future debt.