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Is it financially in your best interest to pay cash for a new car?

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Wiki User
2009-01-25 00:36:19

If the only thing that matters is the bottom line, then yes,

paying cash on the barrel head is the least expensive way to buy a

car. If you calculate the present-worth cost of financing a

vehicle, even at a reasonable interest rate, it will be higher than

if you paid cash for the car. Having said that, one must consider

the opportunity cost of paying all at once for a vehicle. If you

plunk down 20 or 30 grand or more for a car, what else might have

you done with that money? If you can invest it, then using it all

to purchase a vehicle may not be a good idea -- but only if your

rate of return on the investment is higher than the interest rate

you would pay on the loan if you financed the car. It depends on

the interest rate. You need to calculate the cost of interest to

finance the car, then calculate how much you would make if you

invested the money for the same period. A zero interest loan that

many auto manufacturers are offering might be to your advantage if

you would invest the money for the duration of the loan. On the

other hand, can you get a discount for paying cash and how does

THAT fit into the above calculation?

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