What Are the Advantages of Paying Cash for a New Car?

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Even with poor credit.

By

Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - August 12, 2021

If you have the cash on hand to pay for a car in full, then it can offer you quite a few benefits. If you have poor credit, though, it might be a better idea to take on a loan, since new credit can be the ticket to repairing a bad credit score.

First Up: 5 Advantages of Buying a Car Outright

Not many people have the ability to purchase a car completely with cash. It can take a lot of saving and hard work to get enough funds, especially since brand new vehicles can run borrowers around $40,000 or more nowadays.

If you did the hard work of saving and want to buy a new car with cash, here are five advantages:

1. No monthly payments

Paying for a new vehicle outright means you don’t have to repay a lender, which means no monthly car payments. This is a huge plus for many consumers. One less bill to worry about each month equals less stress for you, and more available monthly income!

2. No interest charges

If you’re not taking on a loan to pay for a vehicle, then you don’t have to worry about interest charges. Interest is the cost of borrowing money. For many borrowers with poor credit, interest charges can stack up quickly, since a lower credit score can mean a high interest rate. By avoiding financing, you’re avoiding paying extra money for a car, which can mean a lot of savings if your credit score is less than perfect.

3. No repo man

If you don’t have a loan on the new car, that means you don’t have any payments to miss – which means no repossession risk from an auto lender. There are some lenders that start the repossession process after one missed payment, but that wouldn’t be a worry for you since you don’t have a loan and your vehicle is completely yours.

4. Choose your own insurance policy

When you finance a vehicle, new or used, you're required to insure it to the lender’s standards because it’s their asset until you complete the loan, which typically means full coverage insurance at a minimum. However, when you own a car completely, you only have to meet your state’s minimum insurance requirements, which typically means cheaper policies to choose from as long as they meet your state’s standards.

5. Negative equity isn’t your problem

Negative equity happens when you owe more on a car than it’s actually worth. This is especially common with brand new vehicles since they lose value very quickly. It also makes it hard to sell a car and pay off your loan when you decide it’s time to get another one. However, when you own a vehicle, all of its value is equity! If you decide to sell your car, then all the money you get from the sale can go into your pockets instead of being used to pay off a remaining loan balance. This is also helpful when trading in with a dealership since all the equity can be used to lower the price of your next vehicle.

Many borrowers want to avoid the hassle of an auto loan, especially if they have poor credit and are worried about high interest rates. Paying cash for a car can certainly give you a multitude of benefits, but paying cash for a car has its downsides as well.

Disadvantages of Paying With Cash

Some disadvantages to consider before using all your funds to pay for a new vehicle include:

  • No credit repair

If your credit score is poor, and you only pay cash for big-ticket items or don’t take on new credit, you’re not likely to improve your credit situation. One of the better ways to build a good credit score is by building a payment history. Auto loans can last anywhere from four to eight years, on average, and those years of timely payments can do wonders for a credit score – something you’d be missing out on if you pay for a car completely out of pocket. And never working to improve your credit could cause problems down the line if you need to finance something.

  • Could deplete your savings

By paying cash for a new car, you may have more available monthly income because of the lack of payments, but it could deplete your savings and lead to financial difficulties later on. If your car breaks down, do you have more cash on hand to resolve the problem after buying the car outright? Having a decent emergency fund is a good idea for any borrower, and it’s something to consider before forking over everything you’ve saved for one item.

  • Could lose money

New vehicles lose value very quickly, usually around 10% to 15% in the first year. Five years after purchasing a brand new vehicle, a car may be only worth 60% of its original value, according to Edmunds. By paying for a new vehicle upfront, you’re paying for a lot of depreciation out of pocket. If you have the cash on hand to pay for a car outright, it may be wiser to buy a used vehicle that’s already seen its steepest drop in value.

  • Are you borrowing money elsewhere to buy the car?

If you’re borrowing money from a friend or family member to get into a vehicle because you aren’t able to get a car loan, then it may be wise to ask them to cosign for a loan instead. Borrowers who feel unable to secure financing may feel that their only option is to pay cash – but a cosigner can boost your chances of qualifying. A cosigner with a good credit score can provide more security to the loan, and could be the way you get a vehicle while working on your credit situation at the same time. And if you’re asking to borrow money from a family member and they’re already willing to help, they may also be willing to be your cosigner.

Paying for a brand new vehicle with cash is a big feat to overcome, and so is getting approved for an auto loan. However, you may have more lending opportunities than you think – if you know where to look.

Credit Repair With a Bad Credit Auto Loan

If you think that the only way to get a vehicle is by paying cash, then you may be selling yourself short. Many borrowers with less than perfect credit feel defeated if they aren’t eligible for a car loan, but we may be able to help.

Here at CarsDirect, we’ve created a nationwide network of special finance dealerships signed up with subprime lenders. These lenders know that there’s more to a borrower than just a credit score, so they look at many other factors outside of just your credit rating to determine your ability to repay a car loan. Complete our free auto loan request form today, and we’ll get right to work looking for a dealer in your local area that has bad credit lending resources.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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