There are several factors that you will need to consider before you blow your savings and pay cash for your car.
So what are the benefits and drawbacks of using cash to pay for a car?
Benefits of Using Cash
You can avoid the monthly instalment when paying cash for your car, but there are other benefits to paying in cash.
Overspending is Not So Easy
You can’t overspend when you use cash. After all, you can’t spend more than what you have.
With vehicle finance, on the other hand, it is easy to get carried away because instead of focusing on how much the car is, you will focus on the monthly instalment. Also, dealers will try and tempt you with extras, so in the end, you could spend more than what you originally intended.
If you use cash, you are restricted to what you have. You can only look at cars that are within your budget.
There is No Interest to Pay
With vehicle finance, you will need to pay interest, but this is avoided with cash. In the long-run, you could save some money.
You Won’t Be Caught Upside-Down
Cars depreciate as much as 20% in the first year of ownership. With vehicle finance, you could find your loan upside-down at some point. This is important to note as it could make selling or trading-in your car more difficult as you will owe more than what it is worth.
However, you won’t be in this position if you use cash.
No Financing Worries
You will need to be approved for vehicle finance before you can get a car, which can be difficult if you have chosen a car from a private seller. Lenders see this as a higher risk and if you do secure vehicle finance for a private sale then the interest will be high.
You don’t need to worry about securing finance when you pay cash.
Drawbacks of Using Cash
Even though paying cash for your car may seem like a good move, it definitely has a couple of drawbacks.
Blowing Your Savings
Using cash to pay for your car could mean that you blow your savings. If this is the case and an emergency pops up, you won’t have the financial backup to handle it.
If you have saved up a good chunk of money then instead of blowing it, rather use part of the money asa deposit and keep the rest for emergencies. This will lower the monthly premiums and make the car more affordable per month.
It’s Probably Better to Invest
If you have a good credit standing then you can get a low-interest rate for vehicle finance.
If this is the case, it could be wiser to invest your cash and use vehicle finance to pay for your car.
If you find a good investment with a good return then you could even come out ahead if the interest is more than what you pay on the loan.
Dealerships, private sellers and auctions will have different requirements if you want to pay for a car in cash. It’s best to find out what these are beforehand so that you can have all the paperwork ready.
Whether you pay for a car in cash or use vehicle finance, it will depend on your finances. It is best to know where you stand financially first, the impact that paying cash will have or if your budget can take vehicle finance.
If you are looking fora car to buy, then you can browse thousands of listings at Cars2Sell. Cars2Sell only advertises from reputable dealers in South Africa, giving you the most choice within your budget.