People seem to think that cash is the best way to pay for an automotive purchase, some will even try to convince you that you should only consider buying if you can pay for it outright. While it’s true that it is the least expensive option, since it eliminates interest, that doesn’t necessarily make it the best option.
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For many of us, not only is paying cash not the best option, it simply isn’t an option at all! Most people just don’t have the cash available to make such a significant purchase. Even if it is possible for you, let’s look at a few reasons that make a car loan the better option.
Better Uses for the Cash
Having the cash available (and a car purchase on the horizon) doesn’t mean it’s the best way to use your savings. If you’re considering buying a home in the future, it may be better to put your savings towards that down payment. Or, if you are carrying debt at a higher interest rate, it may save you money in the long run to pay down that debt instead.
A Cash Purchase Now Could Cost you More Later
If you have scrimped and saved for months (or years) to squirrel away enough money for this, you need to ask yourself about the reliability of the cars in the price range that you can afford, compared to what you could get through financing. An older, less reliable vehicle with higher mileage on it is far more likely to require costly repairs and end up setting you back financially.
Building or Repairing Credit
A cash purchase for a vehicle has no effect on your credit score. If you are trying to establish credit, or if you’re working on improving your credit score, getting a car loan will go a long way towards achieving those things. Having a car loan and making your regular payments on time is a great way to improve your credit score. If you have been socking away money every month to make your purchase, that’s a good sign you’ll have no difficulty making your car payments.
A car loan also helps your credit score because it’s a different kind of debt (as opposed to a credit card debt) and the credit bureau likes to see diversification in the kinds of borrowing you do.
Loss of Emergency Funds
It’s a risky thing to empty your savings account. It’s always a good idea to have a rainy day fund for those unexpected expenses that creep up from time to time, or for emergencies. Most financial experts recommend keeping the equivalent of at least 3 to 6 months worth of your expenses in savings in case your employment situation changes.
Risk of Jeopardizing Relationships
Many young people who need to close the gap between their savings and the cost of a vehicle contemplate approaching friends or relatives to lend them money. At the very least, it is an uncomfortable thing to do. In addition, if they agree to lend you the money, chances are they’re doing it reluctantly. Is it really worth jeopardizing your relationship with them?
Unless you can pay cash for your car with great ease, you may be happier and better off with a car loan and CarLoans411.ca can help! Our experienced lenders are on-hand to help you secure financing that meets your needs. We have helped hundreds of thousands of Canadians get reliable vehicles, and improve their credit. Let us help you, too!