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Is there any disadvantage at all to paying cash for a car instead of financing?


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Wiki User
2015-07-17 17:37:50
2015-07-17 17:37:50

Paying cash for a new vehicle is one of the most stupid things you can do. New vehicles depreciate 15%-20% the first year and on average 50% after 3 years (average 3-yr lease residual) If you finance at a competitive rate, you will pay some interest, but if you put the money you were going to waste on a new car and buy a CD, you will earn compound interest AND still have your money. Or, as has benn mentioned, apply it to your morgage and save LOTS of money over the course of the term. The very cheapest way to drive a new vehicle is to utilize a good lease. Rjoslin- 30 years auto finance experience

It depends on what else you would do with the money and if there are any special financing programs.

For example, let's say you are buying a new Chevy Truck for $25,000 with 0% financing. If you have a mortgage on your house that you are paying 6% on, then you should take the 0% financing and put the $25,000 towards your mortgage and you'll guarantee yourself a 6% return on your money. If you have a credit card bill with an even higher rate, you'll save even more.

Be sure that you don't give up a more valuable incentive, like cash-back, in order to get the low/no rate financing. If there is a choice, run the numbers both ways to see which way it works out better.

It depends. If you're buying a new car, you'll lose a couple of grand to depreciation the minute you drive it off of the lot. That'll really mean something to you if a year or two down the road you want to trade it in for something else and the dealer offers you several thousand less than you've paid for it! If you just don't want a car note, shop for a gently used (2 to 3 year old) model of the car that you want. Someone else has paid the depreciation and you get what you want at a substantial savings.

I would suggest never pay cash to a dealer unless you know them very well.If they went out of business or something similar you could end up without a title. If you finance the car no money will change hands until they have put the title in your name.Go ahead and finance and then pay it off next month.You will spend a little in interest charges but it is much safer.

Nebraska law asks that any amount over $9999.99 paid in cash be reported to the IRS.

Actually, that's federal law. It's intended to catch drug dealers--because as we all know, the only people with more than $10,000 to their names are dealing. (Yes, my opinion of this law is justifiably low.)

A previous poster said paying cash is about the stupidest thing you can do (note that she is in the business of selling car loans). This is untrue. If your credit isn't that great, and you have to finance at greater than 10% interest, you should absolutely pay cash IF you can afford it. Why would you put that money towards your morgage? Your morgage (if you have one) will almost definitely be at a lower interest rate than a car loan. Also, with a home loan, you are borrowing against something that is expected to at least maintain, or most likely increase in value. If you have the option, why would you borrow against a car that decreases in value? Investing is something else you can do with your money if you don't pay cash for the car, but the only way to come out even is if your investments (AFTER TAXES) can give you a greater return than what you're paying in interest. For a car financing of greater than 10%, this is unrealistic. Most conservative investments gain about 10% over the LONG HAUL. There's also always a great risk that you'll lose money in the short term. CDs are a great way to get guaranteed returns on your investment, but rates seldom reach much over 5%, especially for the quantities of money we're talking about.

The reason people with good credit are offered lower interest rates is not only that they're more likely to repay on time, but also that it increases their incentive to do so. If if you have a good credit rating, you most likely are decently well off. With intelligent saving, you can afford to pay cash for a car. If you had the choice to finance at 10% or pay cash, you would definitely pay cash. However, if you're offered financing at say, 6% or less, you're presented with a decision. If decide to invest the $30,000 you were going to pay for the car, you can expect to get a return of about 10% over the long haul with limited risk. If you financed for 6%, then you're 4% (less taxes) ahead. However, you might just take the safe option and pay cash anyway, and not leave anything to chance. It depends on what your financial situation is, what kind of rate you can get, and whether or not you can afford the drop in your cash reserves. As with any important decision, it's important to get several opinions (and to know where those opinions are coming from). If you're still unsure about your personal situation, it's proabably worth it for you to talk to a professional financial advisor. Now might be a good opportunity for you to establish a relationship with one if you don't already have one.

I would definitely pay for new or used car in cash. The Bible tells us, "Owe no man anything, but to love one another: for he that loveth another hath fullfilled the law" (Romans 13:8). When you live a debt free life, there is less stress, worry and you are healthier. We have a separate account to add money each week for auto expenses. When your car is paid for and it becomes a piece of junk, you really don't mind driving it around, knowing that your money in the bank keeps increasing each week. There will then come a time to purchase a new car again, but not until you have all the cash on hand. In the end, living with this type discipline brings a peace of mind and calmness that saving a few buckets through accounting gimmicks cant beat.


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Yes...If you get a car loan and make your payments on time this will help your credit score. If you pay in cash, nothing will be reported to the credit agencies.

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it is legal as long as they meet the financing requirements and insurance requirements of the financing. paying cash you bet.

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Negative cash flow from financing activity means that company has more outflows due to financing activites then cash inflows from financing activities.

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Advantages are it allows seller access to financing and legal access to the legal systems. Disadvantage is that it is not real cash.

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The sticker price is either for cash or financing. The car company doesnt care if u give them cash or the bank gives them cash. It is easier to negotiate when paying cash tho

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