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    Buying a new car is a process full of decisions. One of the biggest is choosing whether to pay with cash or to finance the car through a loan. The decision is ultimately up to the buyer, and strongly depends on the cash at hand and credit score. Find out exactly what financing and paying with cash adds up to, then take a look at the good and bad of paying with cash and financing. Use this information to make the best decision for you.

    How to Pay for a Car with Cash

    Paying with cash is perhaps the simplest way to purchase a car. To pay with cash, show up at the dealership with a check or cash in hand amounting to the total listed price of the car. Check to see if there are any additional discounts for paying with cash. Make the payment, sign over ownership of the car and drive your new vehicle off the lot.

    How to Finance a Car

    Financing a car is a little more complicated than paying with cash, but could be the right choice. Financing a car involves taking out a loan and splitting the payment up into monthly pieces. The first decision is picking the source of the loan. Take out a loan from the dealership, a bank or arrange a home equity loan. Loans from the car dealership are fast and easy to obtain, but sometimes comes with specialty upgrades on the car and high interest rates. A bank loan does not have the itemised pressure of a dealership loan, but they take longer to apply for and obtain. Finally, a home equity loan has very competitive rates, but take care as the car payments are now tied to house payments. Decide on a loan source and bargain for the best possible interest rate. The best rates are available to the buyers with the best credit scores and those who take shorter length loans. Credit scores above 700 and 24-month loans are good parameters to shoot for. Make sure to check for additional loan bonuses such as senior or recent graduate discounts. When all the loan terms are in place, take care to complete all payments on time to get the most out of the money.

    Cash: The Good

    The biggest draw to paying with cash is of course leaving the lot with a car that is totally paid for. There are no loans and no monthly payments to deal with. Some dealers even offer lower prices for cash payments, because they already have a full payment in hand. Furthermore, paying with cash makes selling the car easier down the road. No loans means less hassle when you move on to a new car, because you are the owner of the car rather than whomever gave the loan. Cash is the fastest and simplest way to buy a car.

    Cash: The Bad

    The biggest danger to buying a car with cash is the large chunk of change that is inevitably coming out of savings. Cutting into the financial net of savings can be dangerous if financial difficulties arise before refilling. A car's value drops as soon as it leaves the lot, and using a large sum of money to pay for it might not pay off in the long run. If there is no long-term financial support, the car can become a poor investment.

    Financing: The Good

    The greatest benefit of financing is the timing. When the payments are split up over months at a time, this allows for complete payments in the end without blowing through a large amount of cash at the start. The buyer can keep money for other needs and begin the process of buying a car they don't have all the money for at the moment. In addition, financing responsibly with a small interest rate can boost your credit score if all payments are sent in timely fashion. Finally, when all the monthly payments are paid off, the car is yours for good.

    Financing: The Bad

    Financing is heavily dependent on the buyer's credit score. A poor credit score, usually under 600, leads to a loan with high interest rates. This can make the overall price of the car over time much more than simply paying with cash. Additionally, selling a financed car before all the payments are complete is complicated. The car is still owned by the loaner, and adding another party to the process is messy. Depreciating value is also tough to deal with when financing a car. A car's selling price is always much lower than the purchasing one.

    The decision to finance or pay cash for a vehicle is best viewed on a case-by-case basis. Take time to understand what each process involves, then use these general tips and apply them to your financial situation. Purchase responsibly, and you will soon be driving your new car off the lot.

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