John Snow in Engineers and Technicians, automobile, Automotive Jun 4, 2020 · 2 min read · 2.4K

Should I Pay In Cash or Should I finance A Vehicle?

Should I Pay In Cash or Should I finance A Vehicle?

Let's start with that question that many people seem to have. Why is it cheaper to "supposedly" pay for financing than to pay cash? This is something that makes no sense to many because by paying cash you are giving away all the money and thus the dealer is supposed to avoid defaulting on payments, etc, therefore, it should be cheaper.

The reason it's cheaper to finance is because it's not cheaper. It may look like it, but it is not.

First of all we have the interest when we finance the vehicle on the brand itself. These interests are not usually low, and are around 6 to 12% (more or less, more or less around 8 to 10%). In BMW for example is at 10%. You can pay an amount in cash and thus reduce your amount financed, but there is a maximum, because if not they are not interested and therefore you can not accept the offer of financing.

Cash vs Financing a car

Let's say then, that when you pay financed, you will pay in most cases more than if you paid cash, the difference is that you will do it little by little and you will not be decapitalized. And well, for those who do not know exactly what it means to be decapitalized, it is basically to stop having the disposition of your money. When you pay cash, your money saved is no longer in your hands, and therefore if you need it you can not access it. You would be then, decapitalized.

But in addition, they make sure that by financing it you get certain "advantages" that perhaps you would not have by paying cash. For example, the first year at full risk, technical service for some period of time, possibility that later they buy it or change it for another (that if, provided that all the arrangements, reviews, etc, go through them) ... candy so that in the end you see the option of financing it as the best option without doubt, because they are most interested.

But let's not forget that car companies are businesses, not little sisters of charity. They want to get as much downpayment money out of you as possible, and therefore the option they promote most will be the option that interests them most. That's like banks, they may look like friends, but they're not, they want your money.

And if you're thinking of borrowing money on your own from a bank because it's probably the lowest interest rate, it wouldn't be worth it because you won't enjoy the discounts they give you for financing directly with them. So that would be the worst option of all unless the dealer gives you the option to keep the offers.

And if you want to see how much you will pay with interest, I leave you an online calculator where you can see it perfectly.

Is it worth paying cash for the car or financing it?

First of all you will have to do the calculations with the tool I told you before. This way you can see how much interest you will pay and make the total calculation of how much the car would cost you in cash and how much would be financed.

Once you have done this, the decision is yours, but at least you will be able to decide with the real numbers. Knowing that even if it seems cheaper to finance, in the end it is not. That is to say, you already have your eyes open, and with your eyes open you decide better.

Obviously, it's not the same to pay 15,000 miles at once, as to pay it little by little, even if it's even more expensive when you finance it, because when you pay it at once as I said, you become decapitalized, that is, you stop having the money in your pocket. And not only that, if along the way your economic situation worsens, you can always stop paying even if the financier keeps the car. Let's say you have more flexibility.

Summary

I honestly don't recommend decapitalising when it comes to large amounts, especially if the difference in savings is going to be minimal compared to the amounts to be paid. If you need automotive advice or tips for quick repair this website provides the best tips for quick auto repairs. It's true that you wouldn't have any debt, but you wouldn't have the money saved either. You can have a buoyant economy today and find yourself in a much more delicate situation tomorrow.