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Financing vs. Paying Cash - Navigating the Road to Your Next Vehicle

Published on Aug 23, 2024 by CarShop

Not sure how to pay for your next vehicle? Let CarShop help!

When you're ready to purchase a vehicle, one of the first decisions you'll face is how to pay for it. You have two options: paying for the vehicle upfront or financing it over time. In this blog post, we'll dive into the benefits of financing versus paying cash. Our goal? Helping you decide which is right for you.

Financing

Financing a vehicle means that you will pay over time, somewhere between 24-72 months. This approach spreads the cost over multiple years, and in most cases, doesn’t require a large sum of money down. Financing makes purchasing a vehicle much more manageable for many buyers.

This option allows you to keep your savings around for other essential expenses as you pay off the vehicle. Another benefit to financing is helping build up your credit score, as you routinely and reliably make your payments month after month.

When it comes to financing, there are three significant factors to consider:

  • The loan amount (the total amount you’re borrowing to get the vehicle)
  • The annual percentage rate (also known as the APR, which is the interest rate you’ll pay on your loan)
  • The loan term (the amount of time you’re taking to pay back the loan amount)

If you’re looking to finance a vehicle at CarShop, you can even use our handy-dandy payment calculator. It can help you determine what you want your down payment and monthly payments to be, factoring in trade-in values, the loan term, and more.

While you’re doing your calculations, consider this: compared to paying cash for your vehicle, financing can allow you to make money over the long run.

How? Well, it comes down to interest rates and opportunity costs. When you pay cash, you’re giving up the opportunity to invest that money elsewhere, but when you finance your vehicle, you keep the bulk of your cash available for other investments.

Let’s take a $25,000 vehicle. You can pay for that vehicle in cash and avoid a monthly payment. Or alternatively, you could finance the $25,000 at an annual interest rate (APR) of 6.99% and then invest your $25,000 dollars to make your money work for you. Let’s say you invest $25,000 with a 4.95% rate of return. After 72 months, with compounded interest, you will make $2,945 more on your investment than you paid in the car loan interest!

So, even if you have the cash to pay in full, it can still be beneficial for you to finance your vehicle, because it builds both your credit score and your bank account.

Choosing What's Best for You

Ultimately, the decision between paying cash and financing your next vehicle depends on your individual circumstances. If you have sufficient savings and prefer not to take on debt, paying cash may be the right choice.

However, if you’d rather keep your cash for other purposes and have a steady income to cover monthly payments, financing may be a better option. Plus, thanks to CarShop’s relationships with 20+ national and local lenders, you could qualify for a low-interest loan that can make the cost of financing worth the convenience and financial flexibility.

Ultimately, the key to making your decision is to carefully assess your own financial situation, understand the terms of any financing contract you may agree to, and budget to make sure that regardless of how you pay for your vehicle, you’ll be in a safe place financially after your purchase.

If you want to learn more about financing your vehicle the haggle-free, hassle-free way, you can visit CarShop’s financing page here.

 

This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial or other advice.

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