Buying a Car with Cash: is it a Good Idea?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - January 11, 2018

Paying for a vehicle out of pocket cuts out the hassle of getting approved for an auto loan, but it might not be in the purchaser’s best interest in the long run.

Benefits of Buying a Car with Cash

These are some of the top advantages of paying cash for a car:

  • No interest charges – One of the biggest benefits of paying with cash is avoiding interest charges, saving borrowers money in the long term. Interest charges can greatly impact vehicle cost and choice.
  • Flexible insurance coverage – When a buyer pays with cash, they own the vehicle free and clear without a lien. This also means the buyer can choose the insurance coverage they want – provided it meets their state’s minimum requirements – while consumers who finance are required to have full coverage.
  • Free from monthly payments – An easy way to get in debt or even resort to bankruptcy is financing a vehicle for too long a term with payments that aren’t affordable. Buying a car with cash frees owners from a lengthy payment schedule and can increase future flexibility.

Drawbacks to Paying Cash for a Car

It isn’t always in a buyer’s best interest to pay cash. Consider these downsides:

  • No chance to improve credit – If the buyer has a low credit score, paying cash won’t help them rebuild their credit. Taking out a loan and making all the payments on time is a great way to build credit. When someone pays in cash, it won’t appear on their credit report.
  • Lose a large sum of money – Depending on the buyer’s financial situation, spending thousands of dollars at once might not help them in the long run. It’s always a good idea to save money and have a backup plan. Things can go south in a hurry if a buyer’s safety net is exhausted by a car purchase.
  • Budget influences selection – The biggest drawback to paying with cash is that a buyer may have limited vehicle options. A buyer’s budget can influence whether or not they can get a car that will meet their needs.

Bottom Line

While it may seem like a no-brainer on the surface, the drawbacks to paying cash may not make it the best option for some car buyers, even if they can afford to.

If you're looking for an auto loan, but don’t know where to start, CarsDirect wants to help. We connect consumers to car dealerships that are capable of assisting car buyers in many types of credit situations. Start the process by filling out our auto loan request form today.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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