People just love cars so much that they are willing to go through auto loan financing in order to own one. Cars are still the best mode of transport that one can own. Every young person’s dream is owning a car someday. When you look at people’s dream boards, screensavers, and posters in teenagers’ rooms, cars would be a part of them most of the time.
Only a few people think about paying cash when buying a car. Auto loan financing seems to be the more popular choice. The average price for a car is around $35,000 which makes it quite steep for many to go the cash payment route.
Why Pay Cash For A Car
- You get cash discounts
A lot of car dealers would come up with financing deals that are simply hard to resist. There are 0% interest offers that many consumers grab at once. The more popular perks are the 1% to 2% Annual Percentage Rates for financing packages. They all look good on paper, but in reality, people forget that all of these offers makes you pay a higher price in the end. Rebates and discounts are given for those who decline car financing. This means that you can buy your car at an even lower price compared to the 0% interest offer. This is still money lost in a car that you know will go down in value once you drive it out of the showroom.
- You stay within your budget by paying cash
Cash payment is more difficult to do especially for a huge amount. This is what car financing takes advantage of, giving buyers the feeling of paying less for a longer term. When you pay in cash you will stick to your budget at all cost. Agents will always try to upsell and they use financing to encourage you to buy a more expensive model that you don’t really need. Be firm with your decision to stay within your budget and be content with the model that you can afford. Upgrades can be made in the future when you need them, which gives you time to save up and pay for them in cash as well.
- Pay less taxes
When you get a mortgage on your home or a student loan, you are allowed to deduct interest payments from your income which results in lower tax payments. Car loans are not a part of income deductions.
- Longer term car loans make you upside down longer
A car’s value goes down at around 20% once you drive it home from the showroom. This will put you in a situation which they call being upside down on your loan. This just means that you owe more on your financing than what your car is worth. For example, your car’s value is at $9,000 and you still owe $15,000 on your car payments, this means you are upside down by $6,000. This can have an effect on insurance claims if you have to make one while you are still upside down or underwater on your loan. The insurance company may pay you what your car is worth, but that won’t be enough to cover payment on your loan if you are upside down.
Car’s rarely appreciate in value except in rare cases when they were preserved or vintage cars already. Compared to being upside down on your mortgage loan, at least properties increase in value over time.
- Paying interest is money lost
Imagine the savings and the extra cash that you may have if you didn’t have to pay for your car loan. You can use the money for your retirement, buy a home or invest it in business. It is always better to put your money in an instrument that earns interest rather than you having to pay interest. Interest payments can be considered as money lost.
Let’s look at the numbers, if you go for financing worth $32,000 for five years at 6% Annual Percentage Rate, your total interest payment would be around $5,000.
It takes discipline to pay for cash on your car. This can be a good thing because this can help you apply it in other areas of your life. Money management is one of the hardest to master, but when you get the right discipline it will serve you well. Make it your goal to pay cash for all your purchases big or small. Remember that financing deals only give you an illusion that you are getting a good deal. You always end up paying more in the end in most cases.