Should I pay cash for a car or finance it?


The least expensive way to buy a car is to pay cash for it, because with cash, you can buy only what you can afford, and you avoid paying the finance charges associated with a car loan. Nonetheless, the reality is that you may not be able to afford to pay cash for a new car. If you buy a used car with your cash, you may be saving the purchase price and the interest payments. However, you run the risk of the potentially higher cost of repairs, and you could also be buying someone else’s car problems.

Conversely, financing your car allows you to pay off other debts with your cash. For example, suppose you have credit card debts charging interest at the rate of 18 percent and you can get a car loan at the rate of 10 percent. Here, it makes good financial sense to use your cash to pay off the debt with the highest interest rate and then take out a car loan at a lower interest rate.