Should You Buy a Car with Cash or Credit?

Get Car Financing
Even with poor credit.

By

Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


, Contributing Writer - December 9, 2016

When asking yourself whether you should buy a car with cash or credit, you should think about your current credit situation. If you have good credit and want to avoid having a car payment, buying a vehicle with cash might make sense.

However, if your credit is less than perfect, financing your car purchase with credit (an auto loan) is a better option. This is because even though you will have to accept a monthly car payment, you will also gain an opportunity to improve your credit rating.

When You Should Buy a Car with Credit Instead of Cash

If you are trying to rebuild damaged credit, financing your next vehicle purchase can definitely help. This is because the only way to build and improve credit is to use credit. Responsible management of a credit card account (secured or unsecured) can give your credit score a boost. However, it’s also important to include installment loans in your credit portfolio.

If you have bad credit and need a car, it makes sense to buy this vehicle with credit and gain the benefits of an installment loan. When you finance a vehicle, unless it's at a buy here pay here dealer both the loan itself and your payment activity should be reported to the credit bureaus. With prompt payments every month, you may see a significant improvement in your credit score by the time the car is paid off.

On the other hand, buying a car with cash will do nothing for your credit. Yes, you will still have a vehicle to drive, but you will have to look for other ways to get your installment credit back on track.

If you have a large windfall of cash to put toward a vehicle purchase, you might want to consider another option. You could use part of the cash to make a large down payment on the car. Then you can put the rest of the money into a savings account to use on your car payments. Or, you can simply keep it there to serve as an emergency fund.

Getting a Better Car with Credit Instead of Cash

Another thing that you'll need to consider if you're thinking of buying a car with cash is what kind of vehicle you'll be getting. A lot of cash buyers look for a very inexpensive car that will just get them by. And, while everyone loves a bargain, with automobiles, you often get exactly what you pay for.

This means that purchasing an inexpensive vehicle with cash might lead to expensive problems down the road. If you buy an older car with a lot of miles on it, you never know what kind of issues might be lurking under the hood. If you end up with a vehicle that needs constant repairs and causes you to miss work because it's always in the shop, it won’t seem like much of a bargain anymore.

However, if you buy a car with credit, you may be able to expand your price range and get a vehicle that you can rely on for several years. It doesn’t even have to be a new car. These days, most newer vehicles are built to last for a long time. You can purchase an affordable recent model used car with the confidence that you probably won’t have to spend a fortune on repair bills.

Or, for maybe a little more money, you can take advantage of the perks that come with a certified pre-owned (CPO) vehicle. CPO cars typically come with warranties and thorough inspections performed by factory trained technicians.

How to Get Approved for a Bad Credit Car Loan

Some bad credit car buyers pay cash for their vehicles because they don't think that they can get approved for an auto loan. But, luckily, there are special finance lenders out there that are able to work with most credit types.

Here at CarsDirect, we've been helping consumers find auto financing since 1998. We are partnered with a nationwide network of dealers that are connected to special finance lenders. So even if you have bad credit or no credit, we can make your car buying experience faster and easier than you might expect.

Our simple and secure 1-Step Auto Loan Application only takes a minute to fill out and it's free of cost and obligation. Go ahead and get started today.

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, Contributing Writer

Amy Fortune is a contributing writer for CarsDirect and lead writer/editor for AutoCreditExpress. She also contributes regularly to several other high-traffic blogs. Amy was born in North Carolina and grew up with an appreciation for NASCAR and everything automotive. Now based in the Motor City, she continues to be happily immersed in car culture and automotive finance.


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